Itau Unibanco Holding S.A. (NYSE:ITUB) Reveals Plan to Spin Off Investment in XP and Selects AWS as Its Long-Term Strategic Cloud Provider to Accelerate Digital Transformation

Itau Unibanco Holding S.A. ITUB announced that its board of directors has given consent for plans to spin off investment in XP Inc. into a new company — Newco. The company had put forth this idea on Nov 3, 2020, post which, its shares have gained about 33%.

Itau Unibanco will be spinning off companies of the Itau Unibanco conglomerate and the spun off portion would represent 41.05% of the capital of Investment in XP. This portion will be transferred to Newco.

The lender also informed that the spin-off shall be the subject of discussion in the general meeting of shareholders. Notably, post approval, the shareholders of Itau Unibanco will be entitled to have an equity holding in Newco, whose sole asset will be the Investment in XP.

Itau Unibanco plans to divest the outstanding shares of XP, about 5% of the capital stock of of the company, as previously advised, depending on market conditions. The company plans to use proceeds from this investment to increase Basel III common equity tier I capital.

Brief Background on XP Deal

Announced in May 2017, Itau Unibanco had entered into a share purchase agreement with XP Investimentos S.A. (XP Holding), a Brazil-based brokerage firm. Post acquisition, Itau Unibanco was entitled to 49.9% of the total share capital, which made it a minority shareholder of XP Holding.

In August 2018, it received consent from the Central Bank of Brazil to execute the investment. Also, Itau Unibanco signed a concentration control agreement promising the Central Bank of Brazil that it will make no move to acquire the control of XP Holding for a period of eight years.

Itau Unibanco acquired 49.9% of the total share capital of XP Holdings through a capital increase of R$600 million and the acquisition of shares issued by XP Holding that were held by the above-mentioned parties for a total of about R$5.7 billion.

Our Take

The company’s focus on expanding business in Brazil and internationally is reflected in its recent active involvement in acquisitions. However, elevated expenses and stressed conditions in Brazil keep us apprehensive.

Shares of Itau Unibanco have lost 28.1% over the past six months compared with 30% decline of the industry.

Itau Unibanco Holding S.A. (NYSE:ITUB) with the stream of -2.73% in the last hour of Tuesday’s trading session.

Itau Unibanco Holding S.A. (ITUB) had a good day on the market for Tuesday December 01 as shares declined -2.73% to close at $5.35. About 46,975,476 million shares traded hands on 33.85M trades for the day, compared with an average daily volume of 33.85M shares out of a total float of 5.30B. After opening the trading day at $5.42, shares of Itau Unibanco Holding S.A. stayed within a range of $5.31 to $5.52.

With today’s loss, Itau Unibanco Holding S.A. now has a market cap of $48.78B. Shares of Itau Unibanco Holding S.A. have been trading within a range of $3.48 and $9.40 over the last year, and it had a 50-day SMA of $18.06% and a 200-day SMA of $11.73%.

Amazon Web Services (AWS), an Amazon.com, Inc. company (NASDAQ: AMZN), announced that Itaú Unibanco Holding (NYSE: ITUB), Latin America’s largest bank, has selected AWS as its long-term strategic cloud provider. Itaú Unibanco will leverage the world’s leading cloud to accelerate its digital transformation and enhance the banking experience for its 56 million customers around the world. As part of the 10 year deal, which expands on the bank’s existing relationship with AWS, Itaú Unibanco will move the majority of its IT infrastructure off mainframes and out of its on-premises data centers to the cloud. Itaú Unibanco will also migrate its core banking platforms, call center solutions, online, and mobile banking applications to AWS, creating a more flexible and efficient technology architecture that will help the bank to introduce new customer-facing services faster with lower operating costs. In addition, the bank will leverage AWS’s proven infrastructure and breadth and depth of services, including capabilities for analytics, machine learning, serverless, containers, managed database, compute, storage, and security, to gain agility and insights, helping it pursue new lines of business, develop new applications, and ensure security and regulatory compliance. The bank also plans to upskill thousands of its employees, expanding on the 1,300 professionals the company has already trained in advanced cloud technologies, to put new customer service ideas into development faster.

Itaú Unibanco is expanding its use of AWS’s comprehensive portfolio of capabilities across its banking, credit cards, and insurance lines of business, as well as throughout its subsidiaries, such as Rede, one of the largest electronic payment solution providers in Brazil. The bank leverages Amazon Elastic Compute Cloud (Amazon EC2) to provide secure, scalable compute capacity for Pix, Brazil’s first nationwide digital instant payment platform that helps reduce reliance on cash and credit card-based transactions. Similarly, Itaú Unibanco uses Amazon Elastic Container Service (Amazon ECS) and AWS Lambda (AWS’s serverless computing service), to quickly launch and scale new financial services offerings, including iti, the bank’s free digital account platform that allows users to scan QR codes to easily and securely pay for products and services and transfer funds. By modernizing Credicard, one of Brazil’s largest credit card platforms, on AWS Itaú Unibanco can create a digital payment and banking platform that can easily incorporate new features to meet evolving customer needs. Looking ahead, Itaú will migrate off legacy databases to AWS’s cloud-native databases, such as Amazon Aurora (AWS’s relational database) and Amazon DynamoDB (AWS’s key-value database that delivers single-digit millisecond performance at any scale with built-in encryption and data recovery) to quickly, reliably, and securely process financial transactions and build new applications that feature microservices architectures to support scalability and simplify updates.

Itaú Unibanco is also leveraging AWS analytics and machine learning technologies to gain deeper insights into its customers’ banking needs and deliver more personalized experiences. For instance, the bank is using Amazon SageMaker (AWS’s service that enables data scientists and developers to build, train, and deploy machine learning models quickly) to identify patterns in individual customer’s banking habits and then use that information to help the bank’s customer service chatbots proactively offer assistance and deliver faster and more precise answers to customer questions. Itaú Unibanco is creating a company-wide machine learning platform on AWS to further expand innovation, automate workflows, and generate predictive insights.

“Banking is all about delivering value to customers and AWS helps us improve the time to value in every aspect of our business while expanding the benefits of digital payments to our customers. We are pursuing a complete digital transformation on AWS, moving off legacy mainframe technology, and using its portfolio of services to gain insights and agility that will make us even more responsive to our customers’ needs. At the same time, we’re investing in our employees, training them in the most advanced cloud technologies so that they can continuously innovate on behalf of the individuals and businesses we serve,” said Candido Bracher, CEO of Itaú Unibanco. “We chose AWS because of its breadth of capabilities, high levels of security, global infrastructure, and strong financial services experience. We see AWS as a strategic collaborator, and we look forward to aggressively expanding our footprint in the cloud to help our customers’ financial dreams come true.”

“AWS is helping Itaú Unibanco deliver the transformative benefits of online banking and digital payments to its customers in Latin America and around the globe. By migrating its core applications to the world’s leading cloud, Itaú Unibanco can rely on the proven performance, scale, and unparalleled portfolio of capabilities of AWS to complete its transformation into an agile, more customer-centric business,” said Andy Jassy, CEO of Amazon Web Services, Inc. “Financial institutions rely on AWS for our secure, resilient global cloud infrastructure and services, industry expertise, and expansive network of partners. We continuously innovate so that AWS customers like Itaú Unibanco have the best resources to grow their businesses and meet rapidly changing customer behaviors and expectations.”

The PEG ratio is used to determine a stock’s value while taking the company’s earnings growth into account, and is considered to provide a more complete picture than the P/E ratio. Last traded has a PEG ratio of 10.05 where as its P/E ratio was 15.07. The overall volume in the last trading session was 46,975,476 shares.

Important Results:

Itau Unibanco Holding S.A. has P/S value of 2.01 while its P/B esteem remains at 2.05. Likewise, the company has Return on Assets of 1.00%, Return on Equity of 13.90% and Return on Investment of 6.30%. The company demonstrates Gross Margin and Operating Margin of N/A and 20.40% respectively.

ITUB’s price to sales ratio for trailing twelve months was 2.01 and price to book ratio for most recent quarter was 2.05, whereas price to cash per share for the most recent quarter was 0.24. The Company’s price to free cash flow for trailing twelve months was recorded as 3.12.

Historical Performances to Consider:

The Stock’s performances for Monthly, weekly, half-yearly, quarterly & year-to-date are mentioned below:-

On a Monthly basis the stock was 29.23%. On a weekly basis, the stock remained 1.13%. The half-yearly performance for the stock has 11.02%, while the quarterly performance was 25.59%. Looking further out we can see that the stock has moved -40.41% over the year to date. Other technical indicators are worth considering in assessing the prospects for EQT. RSI for instance was stand at 61.19.

For 14 years, Amazon Web Services has been the world’s most comprehensive and broadly adopted cloud platform. AWS offers over 175 fully featured services for compute, storage, databases, networking, analytics, robotics, machine learning and artificial intelligence (AI), Internet of Things (IoT), mobile, security, hybrid, virtual and augmented reality (VR and AR), media, and application development, deployment, and management from 77 Availability Zones (AZs) within 24 geographic regions, with announced plans for 15 more Availability Zones and five more AWS Regions in India, Indonesia, Japan, Spain, and Switzerland. Millions of customers—including the fastest-growing startups, largest enterprises, and leading government agencies—trust AWS to power their infrastructure, become more agile, and lower costs.

Brad Larson

About Brad Larson

This is Brad Larson and I like to introduce myself as an adviser, in the “Earnings Review”. I worked independently as a self motivator and with the financial institute as financial adviser to invest in the Earnings sector for over 9 years in the developing countries by introducing new phases and ways to improve in the Earnings sector.I specialize in market indices, currency pairs, and commodities, rarely trading individual stocks. I accomplished my Post-Graduate degree in Business Administration with a specialization in Finance from International School of Business and Media (ISB&M). I like to travel all over the globe to get new experience and provide by best services to the companies. As an adviser I like to work with new people to share and explore new ideas keeping in view minimizing the operating cost and giving the best final product through new technology and minimizing the time of development.

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