Banco Bradesco SA (ADR) (NYSE:BBD) has been declining on news that Brazil’s debt rating fell further into “junk territory”. Coupled with this, the company had recently reported its FY2015, with decline in income margins, by 3.42%. Added to this, the report also indicated a loss in overall business activity. Consequently, the company has also reduced its operating cash flow, by the same factor, in order to protect accruals and reserves.
Bradesco has its headquarters in Brazil and offers a wide range of banking and financial services, not only in Brazil, but to international countries as well. Unfortunately, Brazil has been the target of political turmoil and poor fiscal growth, in the past few months. As such, S&P has downgraded the country as junk territory. Furthermore, S&P also awarded a negative outlook to the company’s currency rating.
Apart from the recessive conditions inside the country, there has been an economic slowdown in China as well. This is of importance because China is Brazil’s largest trading partner and hence affects all companies operating inside Brazil, including BBD. However, Bradesco has been adjusting its business model and has reduced its operating cash flow by 42.44%, in order to cope with the changing situation in Brazil. This is something positive in the FY2015 report, since it indicates that Bradesco’s earnings are sustainable.
As far as EPS is concerned, Bradesco reported an EPS of $1.02, down by $0.25 from the preceding year. Additionally, as a result of its most recent drop in the market, BBD management has decided to cancel the $757 million capital raise plan. The decision is currently awaiting investor approval. If approved the move would mean that Bradesco would not be issuing 82.6 million voting stocks to the public. Given the current market conditions, this is a wise move on part of the management, since Bradesco can rake in a larger capital, in return for the same shares, when the market conditions improve.
Banco Bradesco SA (ADR) (NYSE:BBD) closed at a share price of $4.88, after losing 4.13% during the February 18 session and trading 8.76 million shares.