Compartamos Draws Gartmore on Mexico's Rebound as UBS Projects 22% Rally

Banco Compartamos SA, the largest Mexican lender to the working poor, is attracting investors from Templeton Asset Management to Gartmore Investment Management as loan growth accelerates and the company seeks to expand abroad.

Compartamos increased lending by more than 33 percent in each of the past four years, helping the company’s shares more than double in 2009. The stock will climb 20 percent by year-end as the bank that controls half of Mexico’s micro-finance loans boosts lending by as much as 25 percent, UBS AG said.

Gartmore and Templeton bought Compartamos shares in the past seven months as analysts projected Mexico’s economy will grow 3.8 percent this year, rebounding from a 6.5 percent contraction in 2009, according to data compiled by Bloomberg. Compartamos is looking to buy a company abroad and will begin offering savings accounts to a micro-finance market that may quadruple, Fernando Alvarez Toca, the company’s 37-year-old chief executive officer, said in a telephone interview from Mexico City last week.

“Compartamos is doing well because the lower-income sectors of society are under-banked,” said Christopher Palmer, who oversees $5 billion as chief of global emerging markets stocks for Gartmore in London. “This is a very attractive business globally.”

The bank offered loans that averaged 5,086 pesos ($416) last year to individuals ranging from taco vendors and garment sewers to door-to-door catalogue salesmen, the company said. Compartamos’s net income jumped to 1.49 billion pesos in 2009, a 33 percent increase from the previous year. Interest income in 2009 was 4.9 billion pesos, a 35 percent increase from a year earlier. Compartamos is scheduled to report first-quarter results after the close of trading today.

Deposit Accounts

Accepting customer deposits would help reduce financing costs for the Mexico City-based company, which now gets its capital by selling local bonds and borrowing from larger banks, Palmer said.

Gartmore bought 68,800 shares, increasing its stake to 4.3 million shares, according to a Feb. 26 filing. Templeton, run by Mark Mobius, bought 2.9 million shares in the fourth quarter, a Dec. 31 filing shows. Templeton fund managers declined to comment, said Bill Weeks, a spokesman in New York.

Compartamos rose 1.2 percent to 70.57 pesos on the Mexican Stock Exchange at 4 p.m. New York time. The shares have risen 4.5 percent this year.

Compartamos will climb to 85 pesos by year-end, according to Tomas Lajous, an analyst with UBS in Mexico City, who rates the shares “buy.” The company will increase lending by as much as 25 percent annually in the next several years as more working poor seek loans, Lajous said.

Lending Growth

Lending in Mexico will probably grow more than 10 percent overall this year, said Ignacio Deschamps, president of the Mexican Banking Association and chief executive officer of Grupo Financiero BBVA Bancomer SA, Mexico’s biggest bank by lending.

Compartamos rallied 170 percent last year as the economy began to recover from the first global recession since World War II. The stock tumbled 47 percent in 2008 on concern the global financial crisis would restrict funding for the bank.

The gain for Compartamos this year compares to a 5.3 percent increase for Mexico’s benchmark Bolsa stock index. Compartamos fell 0.7 percent last week to 71.42 pesos. The company’s 2010 advance has trailed a 19 percent rally for Grupo Financiero Banorte SAB, Mexico’s second-largest lender by market value.

Compartamos’s doubling last year made the stock expensive relative to earnings prospects, said Alejandro Massuttier, who helps manage about $3.5 billion of equities and fixed-income securities at Compass Investments SA in Mexico City.

‘Expensive’ Valuation

“We believe the price at which it’s trading is a bit expensive,” Massuttier said. “We’re waiting for a small adjustment to return to accumulate the stock more.”

The bank trades at 17.1 times analysts’ earnings estimates for this year, more expensive than Mexico’s Bolsa index, priced at 16.2 times projected earnings, and Banorte, which trades for 15.4 times earnings, according to weekly data compiled by Bloomberg.

Borrowers will be able to set up savings accounts with Compartamos this year, and the bank expects to expand deposits to non-loan customers, Alvarez Toca said in the April 14 interview. The company also is seeking to acquire a micro- finance bank abroad, he said.

“We’re actively looking at possibilities to acquire some institution that allows us to expand rapidly to another country and take our strategy to another country,” Alvarez Toca said.

Rating Raised

Compartamos has 1.5 million loan customers out of an estimated 3 million people with micro loans, he said. The bank estimates there are about 9 million more potential micro-finance customers in Mexico.

The biggest limit to Compartamos’s potential growth is its ability to find, hire and train employees, Lajous said.

Standard & Poor’s raised Compartamos’s rating on its senior debt to mxAA from mxAA- on April 15. The rating increase “reflects Compartamos’s capacity to maintain a good financial profile” despite Mexico’s economic situation, S&P said.

Taking deposits could provide the bank with its own financing and help reduce funding costs, Palmer said.

“Lower-income people have a lot of mattress money,” Palmer said. “They will be a big source of deposits, and we already know the loan demand is there.”

To contact the reporters on this story: Thomas Black in Monterrey at tblack@bloomberg.net; Andres R. Martinez in Mexico City at amartinez28@bloomberg.net

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