Itau Unibanco (ITUB) Q1 Earnings Impress On Stellar Revenues
Zacks Investment Research | May 03, 2019 06:48AM ET
Itau Unibanco Holding S.A. (NYSE:ITUB) posted recurring earnings of R$6.7 billion ($1.78 billion) in first-quarter 2019, up 6.3% year over year. Including non-recurring items, net income came in at R$6.9 billion ($1.83 billion), up 7.8% year over year.
Results display higher revenues, managerial financial margin and a solid balance-sheet position. However, elevated expenses and provisions were headwinds.
Revenues Improve, Provisions Rise, Costs Up
Operating revenues came in at R$28.2 billion ($7.5 billion) in the reported quarter, up 2.9% on a year-over-year basis.
Managerial financial margin advanced 4.1% year over year to R$17.7 billion ($4.7 billion). Further, commissions and fees were up 1.1% year over year to R$8.6 billion ($2.3 billion).
Non-interest expenses came in at R$12.2 billion ($3.2 billion), up 4.1% on a year-over-year basis. In addition, expenses for provision for loan and lease losses increased 2.3% year over year to R$4.2 billion ($1.1 billion).
In the first quarter, the efficiency ratio was 46.3%, indicating expansion of 40 basis points (bps) from the year-earlier quarter. An increase in this ratio indicates decreased profitability.
The non-performing loan ratio (loan transactions more than 90 days overdue) came in at 3% during the January-March quarter, contracting 10 bps year over year. Itau Unibanco’s credit portfolio, including endorsement, private securities and sureties, reached R$647.1 billion ($164.8 billion) as of Mar 31, 2019, up 7.7% year over year.
As of Mar 31, 2019, Itau Unibanco’s total assets amounted to R$1.65 trillion ($0.42 trillion), up 8.6% from the end of the year-ago quarter. Assets under administration were R$1.16 trillion ($0.3 trillion), up 12.6% year over year.
Annualized recurring return on average equity climbed to 23.6% in the reported quarter, from 22.2% recorded in the year-earlier quarter. As of Mar 31, 2019, estimated BIS III ratio came in at 13.3% compared with 14.5% in the prior-year quarter.
Outlook
For 2019, the company expects costs of credit in the R$14.5-R$17.5 billion band. Also, non-interest expenses are expected to escalate in the 3-6% band compared with the previous forecast of 5-8%.
In addition, the total credit portfolio is projected at 8-11%, while commissions and fees are likely to be up 2-5%, down from the prior estimate of 3-6%. Managerial financial margin with clients is estimated between -9% and 12%, down from the previous projection of 9.5-12.5%. Financial marginal with the market is estimated between R$4.6 and R$5.6 billion. Effective tax rate is estimated in the 31-33% range.
Our Viewpoint
Results of Itau Unibanco highlight an encouraging quarter. Furthermore, the company’s future prospects look encouraging as it remains focused on building strategies to expand inorganically. In addition to these, the merger with CorpBanca has fortified its footprint in Latin America, while acquiring Citibank’s operations fueled the company’s growth.
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Nevertheless, heightening competition, flaring up expenses and stressed conditions in the Brazilian economy pose significant risks.
Itau Unibanco currently carries a Zacks Rank #4 (Sell).
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