Banco de Chile - Growth & Income

One company sure to capitalize on Chile's continued economic growth is Banco de Chile (BCH), the country's largest bank.

The bank recently reported a 46% increase in net income driven by strong growth in residential mortgage loans and improving credit quality. Earnings per share are expected to grow an impressive 57% overall in 2010.

Third Quarter Results

In the third quarter 2010, total operating revenues increased 8.3% over the same quarter in 2009, driven by an 18.3% increase in net interest income. Loans to customers grew by 8.4%. The net interest margin, defined as net interest income divided by average interest earning assets, expanded from 4.25% to 4.74%.

Meanwhile, provisions for loan losses declined 31.6% over the same period as management has seen improving credit quality trends over the last few months.

The efficiency ratio, or how well the company managed its operating expenses, improved slightly from 45.7% to 45.4% (the lower the better). Earnings per share grew by a stellar 45.6% over the same period.

Growth

Analysts revised their estimates for both 2010 and 2011 significantly higher following the strong quarter. The 2010 Zacks Consensus Estimate is $5.81, a 57% increase over 2009 EPS. The 2011 estimate is currently $6.30, equating to 8% EPS growth.

Estimates have been increasing over the last several months, as seen in the company's Price & Consensus chart:

Income

The bank also pays a nice dividend which currently yields 2.9%. This beats the industry average of 2.1%.

Its payout ratio is relatively high at 59%, but not alarmingly so considering the company's strong financial picture.

Valuation

The stock trades at 15.1x forward earnings, a premium to the industry average of 13.4x. Its price to book ratio of 4.3 is significantly higher than the peer group multiple of 1.5. However, the bank's superior returns on equity help to justify this premium. ROE was 27% over the last 12 months, compared to just 11% for its peers.

Read the August 27 article here.

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Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
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