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Credicorp (BAP)

This Peruvian bank beat earnings estimates by $0.15 last quarter, and analysts are forecasting a median target price of $148.57. According to Bloomberg, “it’s the favorite bank of the Americas, and the second-highest rated globally among banking stocks with a market value of more than $500 million and at least 10 analyst ratings.”

Credicorp (BAP)
From Cabot Emerging Markets Investor

Credicorp (BAP) is the holding company for Banco de Credito del Peru—founded in 1889 and the largest in the country—and Atlantic Security Bank, which are commercial banks. Creditcorp is also the holding company for Prima AFP, a private sector pension fund manager, Credicorp Capital (a regional investment banking concern with operations in Chile, Colombia and Peru), and Grupo Pacifico, an insurance company.

Credicorp is enjoying a fortunate combination of 1) strong national growth: Peru’s economy is forecast to grow 3.2% in 2016 and 4.0% in 2017, 2) analysts’ forecasts that the U.S. dollar won’t continue to strengthen, and 3) expansion via M&A.

Investors are finding Credicorp attractive as the picture for global growth in larger countries is cloudy. The number of institutional investors holding shares in the company jumped from 319 in Q4 2014 to 771 in the latest quarter.

In addition to strong regional economic growth, investors like Credicorp’s aggressive expansion via M&A. The company spent $179 million in 2014 to acquire a 61% stake in Mibanco, the largest provider of loans to small and medium-sized companies. (According to The Economist Intelligence Unit, Peru has the world’s best environment for microfinance.)

Credicorp’s revenue shrank by 3% in 2015, after five years of double-digit growth. Earnings are forecast to increase by just 2% in 2016, but will expand to 13% in 2017. In a recent upgrade to BAP, one analyst commented that those earnings estimates were likely way too conservative. The company also boasts total cash reserves of $4.46 billion.

BAP sank a long way from its high near 170 in late 2014 to as low as 85 in January (not counting the August 2015 market free-fall that was immediately erased). The rally that began on January 20 has now lifted the stock back to the high 120s. Despite this rally, BAP sports a very attractive 12 trailing P/E ratio (and a 9.1 forward P/E), which qualifies it as a value stock. And the stock’s tidy 1.8% dividend yield adds to its attractiveness. The stock will trade ex-dividend on April 14, with the payment due on May 13.

We like Credicorp’s strong position as a regional financial center and BAP’s strong upward momentum. We recommend buying a full position in BAP. BUY.

Paul Goodwin, Cabot Emerging Markets Investor,, 978-745-5532, March 10, 2016