welcome to trade ideas I am Brian price and joining me today is Gabby Hevesi
chief operating officer at ACG analytics now Gabby let's pull up a chart of Banco
Popular in May you suggested buying Banco Popular the Puerto Rican Bank at
47 dollars with a target of 56 that stock has reached that level so how are
you looking at it today yes so we talked about this in March when it was around
42 and 43 and then I came back in May and it had gone up to 47 and the main
thing I saw was a lot of money coming in onto the island very small island three
and a half million people getting 70 to 100 billion dollars which is equivalent
to their GDP so that kind of stimulus when you only have three major banking
institutions will flow into the equities both on the deposit level and on the
loan financing level so it was just kind of the easy
well not easy but the assumption that that much money flowing into a spot and
a bank being such a central player with the disaster relief money would be a
positive story for that equity so before we look ahead to where you anticipate
the shares going I want to drill down a little bit in terms of that relief money
sure in terms of what the anticipation was and where it's at right now is the
island getting what it needs it is it being distributed properly so it takes
time and the fascinating thing about this is around less than 10 percent of
the disaster relief money has gone to the island at this point it's been over
a year it's not that I mean if you go onto the island I'm actually have a
flight in three hours everybody quick stop hit on your way to the airport yeah
it'll be my fourth time this year and really I think by early last year at
least in San Juan the you don't see the damage but it was very big story and
they were able to get a lot of federal money so as you know Puerto Rico is in
bankruptcy they're restructuring their debt so we actually have this really
nice fiscal plan that the financial board puts forward that tells us how
much insurance is expected how much disaster relief is expected and kind of
outlines all of it for us so of the around 74 billion that's estimated that
they're going to get they've gotten 7 but that's not a bad thing that means
that this island that was had a stagnating economy for a long time is
now going to have stimulus over the next 10 years and if you look at New Orleans
with Katrina you saw that the prolonged stimulus actually helped the economy and
FEMA was there for a really long time I think they still have some offices there
so as much as it's a story of relief is it also story of debt talk to me a
little bit more about the bonds what we've seen and what's going forward sure
so there's there's finally been some progress they've made a few deals the
board with a couple of the bondholders we have one big tranche left the Gio's
which we expect to see something this coming year and settling that also
removes a level of uncertainty from the island the reason I was talking about
Bank will populate instead of the bonds originally is because the bonds are a
little bit more complicated they're a little bit more political and there's a
lot more at play I do think that's also a positive story and that it's the same
argument the economy is doing well the government has a lot of cash they keep
surpassing their revenue expectations so every time we just keep getting upward
surprises on the island which is great what about tax incentives how does that
factor into your thesis so tax incentives are a huge part of the Puerto
Rican story they have manufacturers and pharmaceuticals that are incentivized
through controlled foreign corporations but also in the tax reform bill that was
passed last year they got a very special provision which was the entire island
ninety-five percent of it is considered an opportunity zone so
opportunity zones incentivize people with capital gains to defer their taxes
so they don't have to pay it and then whatever appreciation they get from
their investment they also don't have to pay taxes on them so there's it's
actually three benefits to it a you defer your gains be the basis of your
game can go down up to 15% and see you don't pay capital gains on that so with
the entire islands being an opportunity zone I expect to see a lot more
investment but also when you have more investment you have more deposits you
have more jobs and you need more financing so that all flows back to the
bank so although it's gone up 20 25 percent since we started talking about
it there's so much more benefit that it's going to get over the next few
years that I think it's still a good a good buy
so we have a story of taxes we have a story of relief and we have a story of
debt what are some of the other factors at play that's driving this bullish
thesis so if you listen to their last earnings call you also have you just see
the economy doing well so this summer transactions were up 18 percent from
last year car Ridge Nations and car sales are up
over 20 percent since last year and although the mortgage origination was
down in the first six months of this year they're now stabilized and growing
so I think that'll only pick up and they're actually getting contractors
from outside so you're getting more people in you're getting the opportunity
for a new infrastructure to help tourism there's there's a lot at play they
they're getting kind of a bit of a blank slate to try to rebuild and make it
better and I think that'll all I mean when you only have three banks on the
island and one couple that has I think over 50% of the banking transactions on
the island it's just clearly they're going to get a huge benefit from it when
we talk about a story of rebuilding and we know the disaster that Puerto Rico
through but you're talking about so much upside there for a variety of reasons in
essence is Puerto Rico writing the playbook for how one can recover after a
terrible natural disaster I actually don't think they are I think that it's a
complicated place politically and they could on the political side be using it
better to do some structural changes for their long-term growth I think in this
short term and the medium term they're doing great but anyone who gets seventy
billion dollars would probably do really well I would like the legislature to
pass some of the reforms that have been recommended to them it doesn't look like
they want to I mean so no okay it's not the playbook
but it is it is a nice story well with that nice story in mind you touched on
remaining bullish when it comes to Banco Popular where do you see it going do you
have any specific levels in mind and what would be your timeframe as it
relates I think for you'll just keep smiiing ago up over the next two or
three years you might see a little bit of a dip when they settle all the bonds
because once they start paying again the government actually banks with Banco
Papa letter so they have this huge pool of money which is all the cash the
government has so once they start paying debt again you're gonna see a big chunk
of their deposits go away but other than that I think over the next two three
years you're just gonna see it go up I would fix I mean if it got up to sixty
five I wouldn't be surprised sixty five within the next two three
years is what you're anticipating yeah it's a big pile of it we'll see how it
goes it's a triple down come on twice before and giving us your case and it's
worked out pretty nicely yeah I change what works well Gaby thank you so much
for joining us making a quick stop at real vision on the way to the airport on
the way to Puerto Rico so Gaby is still bullish on Banco
Popular she suggest buying ticker symbol bpop at current levels with a target
price of 65 over the next two to three years
that's Gaby hevesy of ACG analytics and I'm Brian price for real visions trade
ideas much for watching
you