Bolsas y Mercados Argentinos S.A. (BYMA) Earnings Call Transcript & Summary

Thank you, everyone, for joining. My name is Alejandro Berney. I am the Investor Relations Officer for BYMA. And today, we will be talking about our second quarter results. As is usual, the case, please please keep your questions until the end of the presentation, and then we will open it up for Q&A. Very well. So here our quarterly results. Also a strong quarter. We believe in terms of growth of the business -- as was the case in the last quarter, we are seeing the CSD, the central securities depository [indiscernible] really driving the growth this time around and unlike what was the case for the last 2, 3 years. And now we are seeing the T&D growing faster than the exchange. And we'll cover a little bit of that in the -- during the presentation. The income growth between both of the businesses then, you can see that it was 60% or 25% in real terms. Please remember that this is the only page where we show the adjusted by inflation numbers, which are the numbers on the right hand of the page, and we have the historical numbers in the middle of the page, which is what we usually talk about. Expenses did grow a little bit more than inflation at 68% or 31% in real term. But between both of them, our gross margin also had a nice growth in real terms of 21%, and other operating income was practically flat in real terms. So it grew by inflation. We consider this to be a very good result given the situation of interest rates locally in Argentina. But we will also get into a little bit more detail further on. So the result, net income in historical terms growing at 22%, a little bit below inflation due to higher income tax and in real terms, dropping 9%. So starting then with the details about the business. You can see how the central security depository is growing very strongly. We have added the monthly figures of the assets on the custody in our Investor Relations page. And we are also changing the layout. So it's easier to find the information. We hope that you appreciate the new layout. So you have the AUCs broken down by asset class in the Investor Relations page as I mentioned. And when you look at that detail, this is -- this was an interesting quarter because we saw growth across all asset classes. When we look at the evolution of the first quarter from the end of last year, most of the growth was driven by [T builds] from the National Treasury. Whereas this quarter, we have seen, as I mentioned before, growth across all asset classes. In terms of percentage growth, the corporate bonds was the one with the highest percent Obviously, the government securities are the largest part of the total. So that drove in terms of market value, that is what drove the growth. But in terms of percentage, as I was saying, it was corporate bonds. Also very interesting to see is that the amount of [indiscernible] under custody grew 18% quarter-over-quarter, and it was driven more by amount than by price. So the prices of the CEDEAR portfolio did go up, but most of the growth, 2/3 of that 18% of the growth was driven by more CEDEAR. In other words, we are seeing that local-local retail as well as local institutional investors, both of them are demanding more CEDEAR they are in their accounts. And so we convert the market makers convert more CEDEARs, and therefore, the AUCs have grown locally. As a result of the growth in AUCs then, we have seen very strong results from the central security depository revenue doubled from the previous year, and it was based on the core ADC services as well as the additional services. As a reminder, the additional services or services that are related to international custody, both outflow as well as inflow. In other words, local institutions that are buying assets offshore as well as foreign investors that are buying assets locally. And in addition to the international custody segment of the small and medium enterprise instruments that also drove the assets under custody growth, and therefore, the revenue associated with that loan. So quite a good quarter and even higher acceleration. So the growth, the second quarter was higher than the growth in the first quarter. So we think that this trend will continue. It is driven by the national treasury as we saw, and it is related to the fact that the Central Bank has been buying a lot of dollars, those pesos that were issued to buy the dollars are being absorbed by the National Treasury through security, and those securities, therefore, are in custody and we're seeing the benefit of that in the CSD type. In terms of the exchange, more subdued growth similar to the previous quarter. The historical numbers, the growth was 41% of the revenue. Equities as usual as is always the case, is the largest segment. This time around, on exchange repo was the second largest and fixed income, the third largest. So if we start -- if we look at the different asset classes, how they evolve, first of all, we go into equity, you can see that the ADTV had a very strong growth, 92%. This -- the comparison to the same quarter last year has the difference in fees. We are currently charging 5 basis points on equity whereas, the second quarter of last year in May, we had reduced from 8 to 7 basis points. So half of the quarter had a little bit lower fees, but the other half of the quarter, we were charging for 8 basis points, and therefore, that explains a big part of the reason why the exchange revenues are not growing as quickly. The other interesting point here is that the light blue in the graph to the left of the page is the CEDEAR average daily traded volumes, and you can see that all of the growth has come from the CEDEAR segment. And as a matter of fact, when we look at the dark blue, which is the local shares, with the exception of the fourth quarter of last year, that has been very stable around 90, 000 to 100, 000, it would be $1 billion in English, but it is 1,000 million in Spanish. And that has been pretty flat, as you can see from the graph, in every quarter with the exception of the fourth quarter of last year where we saw the results of the election at the end of October of last year. At that point, the market was in a buying mode, and therefore, the ADTV did go up significantly. So we have 2 initiatives to change this which is a local market maker program and the locally here. BYMA has already selected a broker-dealer to be its market maker locally. We expect that to be implemented in October of this year. This is a broker-dealer that will be acting from abroad, and therefore, there are some connectivity that needs to be solved for them to act. But we hope that this will start showing more -- an increase in local volumes. First of all, on BYMA shares -- but we are actively talking about this program with other issuers locally so that they also consider hiring a local market maker. So that should help drive the growth in the local equity segment. And in terms of the local ETF, also there has been -- it has been officialized that there is a local bank that is issuing that it will be launching the first local ETF that follows the S&P Global index. That will happen also around October of this year. And the local ETF adds opportunities for arbitraging, the ETF with the underlying shares as well as the ETF with the future of the index. So those two arbitrage will also help the growth in local equity volumes SP1 Very well. Going on to fixed income then. Trading and fixed income did recover, as you can see. So the first quarter was very low, a large drop from the fourth quarter of last year, mainly due to the fact that the Central Bank has been very active in the third quarter and fourth quarter. And since then, interest rates have been coming down with -- again, with the injection of liquidity from the Central Bank. In the dollars they were buying as part of their foreign reserve improvement. So you can see that the second quarter and without the appearance of the Central Bank, we are seeing a recovery of the average daily traded volumes of both the guaranteed segment as well as the bilateral segment and a subsequent or the result also of the revenues also growing versus last year and versus the first quarter of this year from the fixed income. Here for this segment, we also have an initiative in place the recent acquisition of context. It is an OTC platform that uses RFQ as a request for quote as a trading mechanism this trading venue is being set up with trade web so that there will be connectivity between foreign investors interested in buying local fixed income in Argentina. It will be easier for them since BYMA will be the sole interface. And therefore, the foreign broker-dealer does not need to approve a credit line to the local participants. BYMA will be the sole intermediary for the entire market. So we believe that in this way, we will increase the volumes traded from foreigners interested in local instruments. On-exchange repo saw a reduction for the first time. This reduction was due to the fact that the local regulator implemented maximum amount that the local brokers can have -- can use their debt-to-equity ratio. So the amount of leverage that the local brokers did come down -- it is not a fixed limit. So it is a relative value limit based on their own network of their own equity. So as the local brokers grow, this growth trend will continue as well on the on-exchange repo. So we believe that this is a drop, a one-off drop we are seeing, and you can follow the daily volumes. We are seeing that the -- we are experiencing growth again from the second quarter, but we are not close to the previous limit to previous amount that we had in the first quarter. So we expect to see growth a little bit more subdued in the future based on these changes that the local regulator introduced. Market data is a small fraction of our total revenues. We should see this line growing with the launch of the local ETFs, and this more local ETFs start using our indices, we should see growth in this segment line. I mentioned the first page that the expenses had been higher than the inflation and half of that impact is due to the BYMA clearing launch that we had in the second quarter. The launch implied a significant amount of consultancy that we hired for the launch from technology vendors as well as bonuses based on the successful launch of the project. And over time, that was also paid. So both of these lines, compensation and consultancy have seen a significant growth based on this project. Half of that growth, as I was saying, was based on the project, and so we should see that come down in the next quarter. The other half of the increase in compensation is related to more head count that we have hired. We are changing the profile of the employees that we have in some areas. So we have been hiring. But again, we should see that this is a maximum amount, and we should come down from that maximum in the next few quarters. And finally, what I wanted to raise was that you will notice that the taxes, the [Ingresso Juruti] line grew below inflation. We are starting to see the impact of the initiatives we had for tax efficiency. And this should see an ever smaller growth in the next couple of quarters as those initiatives take full force. Some of them were implemented towards the end of the first quarter and others were implemented during the second quarter. So we're not seeing the full impact of the tax efficiency initiatives that we have had. Going into our financial income then. First of all, you can see that the the earnings from the devaluation, which is the dark blue portion of the graph. Those earnings came back to being positive. we saw appreciation of the peso in the first quarter, and therefore, we had a loss on the mark-to-market due to that appreciation. Now the second quarter saw devaluation again. And therefore, we saw in pesos, we saw that the earnings growth. And in terms of interest and mark-to-market, we saw a very similar quarter to the first one, it was a harder environment to achieve that due to the negative interest rates that we had for most of the second quarter. And so the results, again, are quite positive as we interpret them based on the market conditions. So as a result of this, we continue to have high efficiencies. We came down slightly from our all-time high in EBITDA and operating margin, but very close to the maximum that we have had over the previous years. And as I mentioned before and based on the fact that several that half of the increase in expenses was related to the BYMA clearing project, we expect that efficiency to inch back up again in the rest of the year. Here, we will leave you the historical numbers. And in summary then, and the I must say that the document we sent out by e-mail and some of the percentages in the first line were erroneous. So we have corrected that in this presentation. These are the correct numbers. It was only in this page that the variation, the percentage variation was wrong. In the previous page, it was correct, but we will be loading uploading this presentation to our Investor Relations website. So this will be the corrected version. So you can delete the one that was sent by e-mail. So we spoke about the clearing -- the BYMA clearing launch. We spoke about the key projects. The only thing to add also is we mentioned it briefly initially, but we have upgraded our Investor Relations page website. So you will -- you should be able to find the information much easier. -- and we welcome any comments that you may have about that or any other questions. And with that, I'll open it up then for questions.

Pedro, please go ahead.

One question on expenses. You mentioned this one-off expenses related to the launch of Biman this quarter. Are there any additional extraordinary expenses for the second half? Or was it all fulfilled this quarter?

It was all fulfilled this quarter.

Okay. Okay. So we should see like normalized expenses you were seeing like on the year-end of last year. Perfect.

Exactly closer to the first quarter of this year. William?

thank you for the presentation. Congrats about the IR website, improved a lot. It was easy to use it yesterday. But yes, I have 2 questions here. The first 1 being picky a little bit on the CSG revenue, right? I noticed it fell a little bit quarter-on-quarter, but the AUC increased about 11%. I just wanted to understand a little bit of disconnect here. If it's a mixed shift or shift or anything that maybe I could change yields expected ahead. So -- this is the first one. I'll ask the second one later.

Okay. Yes. So we always compare to the same quarter of the previous year because there is seasonality in part of the revenue mix. So the first quarter and the third quarter, we have the coupons being paid by the national government on their external debt and we charge a fee on the coupon payment. So those are quite large numbers and we typically see in January and in July, an increase in the corporate action piece, and that is the main part of the difference.

All right. And the second one here is trying to understand about the dynamics of CEDEARs competing with local equities, right? And you mentioned during the call that local equity has been flat. You launch may be a market maker, local market maker to improve it. But I want to understand if there's a correlation, maybe because CEDEAR is growing too much, it's taking share or maybe money out of the pockets for people to invest in local equities, if there's a correlation there. And if this growth here is anything related to memory investments, semiconductors and -- if there is a risk here, if this call decelerated a little bit in the following months, if we should see CEDEARs also decelerating for you?

That's a good point, William. Thank you. And yes, we launched the Cedar SpaceX on the same day that the IPO was done in the U.S. Two or 3 hours later after the IPO, the Sedar was already available to be traded locally. And SpaceX was the most traded that they are for a week. -- even more than SPY, which is typically the most traded they are. So obviously, Enviva and the other hyperscalers, there's a lot of interest in that. And so -- and based on that, what we tried to explain this or the conclusion we have come to is that local retail investors are investing. They're not only dollarizing their portfolio. So we have a lot of conversations about a is hedging dollar or are they investing? We believe that they are really investing and in a way, yes, they compete. But in a way, it is the client's decision as to the investor's decision as to what they're interested in investing in, right? So at the end of the day, this differentiation that we do between local stocks and Clear, the investor doesn't see it that way. He decides what he wants to invest in regardless of where it is issued. And we always also use the example of Mercado Libre. 99.99% of investors believe that MercadoLibre is listed on our exchange. It's actually CEDEAR, but the investor is not looking at it that way. They're looking at the company and not the type of instruments in other words.

All right. And if I could -- Ricardo go ahead, I'll ask later.