Business Context and Reporting Period
Company: Grupo Supervielle S.A. (NYSE: SUPV), a universal financial services group headquartered in Buenos Aires, Argentina.
Reporting Period: Second Quarter (2Q) and First Half (1H) of 2017, ended June 30, 2017.
Filing Date: August 11, 2017 (Form 6-K).
Accounting Basis: Argentine Banking GAAP (unaudited). Figures expressed in nominal Argentine Pesos (AR$).
Key Financial Metrics
| Metric | 2Q17 | 1Q17 | 2Q16 | YoY Change | QoQ Change |
|---|---|---|---|---|---|
| Net Income | AR$579.7M | AR$381.9M | AR$167.9M | +245.2% | +51.8% |
| ROAE | 31.2% | 21.8% | 15.6% | +15.6 ppts | +9.4 ppts |
| ROAA | 3.6% | 2.6% | 1.8% | +1.8 ppts | +1.0 ppts |
| Gross Financial Margin | AR$2,133.2M | AR$1,927.8M | AR$1,304.4M | +63.5% | +10.7% |
| Net Interest Margin (NIM) | 19.8% | 18.7% | 20.4% | -60 bps | +110 bps |
| Efficiency Ratio | 65.0% | 67.5% | 72.1% | -710 bps | -250 bps |
| Total Assets | AR$67.2B | AR$64.5B | AR$41.0B | +64.0% | +4.1% |
| Total Loans (Gross) | AR$44.6B | AR$41.2B | AR$29.4B | +51.3% | +8.3% |
| Total Deposits | AR$42.8B | AR$38.8B | AR$27.7B | +54.9% | +10.3% |
| NPL Ratio | 2.9% | 2.9% | 3.1% | -20 bps | 0 bps |
| Cost of Risk | 4.2% | 3.9% | 5.0% | -80 bps | +30 bps |
| Proforma CET1 Ratio | 11.6% | 12.0% | 13.5% | -190 bps | -40 bps |
Material Changes vs. Prior Period
- Profitability Surge: Net income more than tripled year-over-year (YoY), driven by a 63.5% increase in gross financial margin and a 55.2% rise in net service fee income. Excluding non-recurring items, adjusted net income grew 202% YoY.
- Non-Recurring Items: 2Q17 results included AR$73.3M in net gains from the sale of non-core assets (Viñas del Monte subsidiary and a property). Conversely, 1Q17 included a AR$50M FX loss on a Global Term Note.
- Asset Growth: Total loans grew 54.5% YoY, fueled by a 200.5% increase in foreign trade and US dollar-denominated loans and a 62.4% increase in promissory notes.
- Deposit Mix: Foreign currency deposits surged 225.8% YoY, now representing 24.0% of total deposits, largely due to the release of funds from the Tax Amnesty Program.
- Expense Management: Administrative expenses rose 38.5% YoY due to salary increases and headcount growth, but the efficiency ratio improved significantly to 65.0% due to faster revenue growth.
Guidance, Outlook, and Risks
- Guidance Revision: Management increased 2017 guidance for loan growth and net income, citing strong economic recovery and higher loan demand.
- Outlook: Management expects results to accelerate in the second half of the year due to seasonality and the lagged effect of salary increases on consumer disposable income.
- Capital Strategy: The company plans to deploy IPO proceeds and raised capital to fund loan expansion. A capital increase of up to AR$145M was approved in July 2017.
- Asset Quality Risks: The Consumer Finance segment showed a seasonal deterioration in asset quality (NPL ratio 13.9% in 2Q17 vs 11.3% in 1Q17), though management expects normalization in H2 as salary adjustments catch up with inflation.
- Regulatory/Operational: The company is transitioning to IFRS starting fiscal year 2018. The termination of a financial agency agreement with the Province of San Luis is not expected to materially affect results.
Investor Verification Checklist
- Non-Recurring Gains: Verify the sustainability of net income growth by excluding the AR$73.3M one-time gains from asset sales.
- FX Exposure: Monitor the impact of the growing foreign currency deposit base (24% of total) and the associated hedging costs or gains.
- Consumer Finance NPLs: Track the NPL ratio in the Consumer Finance segment to confirm the expected seasonal improvement in H2 2017.
- Capital Ratios: Confirm the Proforma CET1 ratio of 11.6% includes the AR$805M liquidity retained at the holding company level.
- IFRS Transition: Review future filings for the impact of the transition from Argentine Banking GAAP to IFRS on reported equity and income.