Credicorp: A Bank for All Seasons

By Eric Jackson
RealMoney Contributor
9/28/2010 7:47 AM EDT
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Last month, I wrote about my favorite Latin American bank at the moment, Credicorp (BAP - commentary -Trade Now).

At the time of the article, banks were swooning through a tough August. There was fear that September was going to bring more pain. Yet, as we know, September has been one of the best for equities on record. Still, market skeptics point out that financials have lagged the broader indices this month, which is a sign of more trouble ahead.

Despite this, little Peruvian bank Credicorp has defied its peers and staged an impressive ramp up in its stock price over the last month. The share is up 12.5% in the last 30 days, compared with almost a 10% gain for the S&P 500. Over that same period, Citigroup (C - commentary -Trade Now) and Wells Fargo (WFC -commentary - Trade Now) have only gone up 6%.

So, is it too late to buy in to the Credicorp story? I don't think so. There appears to be more upside ahead. Here are the top reasons for owning the stock, as I see it.

It's a much smaller bank: The bank is "only" just under $10 billion in market capitalization. This means it is large among its peers in the region and able to go after big deals that appear, yet it is not "too big to fail". It is not on the level of a large multinational bank, so should be able to retain the entrepreneurial zeal that has helped it grow to its current size for a number of years to come.

Latin America is still hot: As I argued before, an investment in Credicorp over the last 3-5 years has been an investment in the thesis that the region is going to grow significantly faster than more mature economies. This has played out, and there appears to be no immediate end to it in sight. As more multinationals continue to hunt for economic growth as the U.S. and Europe tread water, they're going as far afield as Africa. Latin America, by comparison, is more of a known quantity, with rich resources and newfound political stability. The region will continue to post above-average growth rates for the medium term, in my opinion.

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Best Bank You've Never Heard Of: Credicorp (BAP)

While we try to guess how our banks are going to do when results of the stress tests are released next week, there is an undiscovered (and potentially less risky) gem of a bank in Peru: Credicorp Ltd. (BAP).

The bank has been a steady performer over the last 5 years and still is performing well in the current environment over the last 6 months. In Peru, it's based in one of the most stable market economies in Latin America.

BAP's return on equity is over 21% with cash on hand greater than its debt ($4B). Its forward PE is only 8. Its revenues have dropped in the last quarter, as it's unquestionably tied to the commodity trade in South America. As the price of copper took a hit in the last 10 months, BAP traded down in sympathy.

If you believe that commodities are going to continue to appreciate over this year and into next, another way to play that is through BAP. Its credible management team has a solid 5 year track record to show for themselves (up 300% over that time).

Position: None.

Originally published in RealMoney.com on 4/30/2009 1:33 PM EDT

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