On Monday, UBS has upgraded Banco del Bajio SA (BBAJIOO:MM) (OTC: BBAJF) stock from Neutral to Buy, adjusting the price target to Peso58.00, a decrease from the previous Peso64.00.
The upgrade comes as the stock is currently trading at approximately 1.1 times its estimated 2025 book value per share, which represents a roughly 20% discount to its seven-year historical average of 1.4 times.
According to UBS, the market's current pricing suggests a long-term return on average equity (ROAE) of 16%, a figure the firm believes is unjustifiably low. UBS's own forecasts estimate a ROAE of around 21% for 2025-26, noting that the bank's ROAE was 26% over the last 12 months.
The firm's decision to raise its cost of equity (COE) assumption and revise estimates following the third-quarter results of 2024, along with UBS's updated macroeconomic projections, has led to a 9% reduction in the price target.
Despite the lowered price target, UBS sees a significant upside potential of 36% for Banco del Bajio's shares. The firm cited the bank's attractive valuation and positive profitability outlook as key reasons for the upgrade to Buy. The increased risk perception in Mexico, largely attributed to the outcomes of the recent elections in Mexico and the United States, has been factored into UBS's analysis.
The analyst's comments emphasize that the revised price target and stock rating reflect a comprehensive assessment of Banco del Bajio's financial performance and broader market conditions. UBS's methodology included a Gordon growth model, which integrates their COE and perpetual growth assumptions to evaluate the bank's future performance.
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