Banco Bradesco (BBD)

Total return at 5 years: 16.2%/year = 8.8% appreciation + 7.3% dividend. The target price ($7) is ex-dividend; the $2 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $13 · Multiples $7) exceeds the market price ($4).

Today — fairly valued: at $4 trades ~37.7% below its value discounted to today (~$7); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Muy infravalorado: the target price ($7) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$4.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($4) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-17.3%/year) than we project (6.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~BRL 9.2 bn of owner earnings in year 5 (vs ~BRL 31.7 bn of our base case). It recalculates if the DCF assumptions are edited.

A bank is valued on equity (P/E × common earnings + price/tangible book), not EV: deposits and debt are funding. It returns capital via dividend + buyback —the buyback reduces the share count, so earnings per share grow faster than aggregate earnings—. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

An equity-level model: a bank's debt is funding, not capital structure, so equity is valued on earnings per share and a multiple, and the cash and debt bridge is set to zero. The entire apparatus is in reais, the reporting currency; the conversion to dollars happens only once, at the close of the waterfall, at the live exchange rate. Four construction declarations. First, the share count is cited from the share capital composition note of the 20-F (ordinary 5,303,870,781 plus preferred 5,288,141,247, less 15,000,000 in treasury, equal to 10,577,012,028 at 31-Dec-2025), because the issuer tags the same magnitude in two scales within the same document and the tagged figure is not usable. Second, the per-share convention is single and declared: total attributable earnings divided by total shares, R$23,672,706 thousand on 10,578,880 thousand average shares, equal to R$2.238. The preferred share collects a dividend 10% higher and that is why its declared earnings per share is R$2.35, but mixing that basis with the total count would inflate the value by close to 5%. Third, year zero is the full fiscal year 2025: the issuer's Layer A does not chain tagged quarters, so no rolling window is manufactured. Fourth, earnings are not normalized downward: the banking expected credit loss charge rose from R$33.12 billion to R$36.37 billion in 2025, that is the recovery in the result came from margin and fees and not from releasing provisions. What is watched, and therefore weighs in the bear case, is that coverage of the loan portfolio more than 90 days overdue fell from 177.8% to 152.3% over four quarters while delinquency rose to 4.3%. The base case path starts at +7.0%, between the annualized pace of the first half of 2026 (+5.4% over 2025) and the growth of the expanded loan book (+11.6% year over year), and decelerates smoothly to +5.0%, nominal growth in reais barely above inflation. Year zero's book value per share, R$16.87, comes from equity attributable to the parent of R$178.42 billion on the balance sheet at 31-Dec-2025. Year zero's dividend is the interest on own capital net actually accrued in 2025, R$12.32 billion or R$1.165 per share, equivalent to 52.47% of the adjusted calculation base the note itself publishes; no instalment is annualized, and the market provider's payment series corroborates it. The buyback is immaterial (R$120 million in the first half of 2026, less than 0.1% of market capitalization), but the share count does not stay flat: on 29 July 2026 the board approved a private capital issuance of up to R$10 billion —up to 604.9 million new shares— that takes the count from 10,577 to approximately 11,175.6 million from the first projected year, and all three scenarios share that same share path.

Today's multiple compresses on its own going forward as the metric per share grows (accelerated by the buyback, which reduces the share count). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $7 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $4, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $7 in 5 years plus $2 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $7. Against the current market price ($4), the margin of safety is 37.7% (trades below the maximum → there is margin) and the total return at that price would be 16.2% annually.

• Entry multiple. Trades at 8× earnings, at the low end of what the market pays for a scale bank.
• Book value. Near one times book value of R$16.87 per share with a book return of 13.3%.
• Dividend yield. 7.1% current, paid as interest on equity with a 52.47% payout of the adjusted base.
• Exit multiple. 11.5x, in the low end of the bank archetype's 10-to-15x band due to the narrow moat.

• Return on tangible capital. 15.5%, above the 10% bar but well below the pre-2023-deterioration level.
• Earnings predictability. Earnings fell by a third in 2023 and rose 37% in 2025: the series is irregular due to the credit cycle.
• Earnings quality. The 2025 recovery came from the margin and fees: the expected loss charge rose 9.8% over the same stretch.
• Reinvestment runway. The expanded portfolio grows 11.6% year over year with 3.3 points of excess capital available.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

A bank has three drivers that read together: net financial margin on the portfolio, the expected credit loss charge that credit consumes, and the deposits that fund it. In 2025 the margin grew 8.6% and the loss charge 9.8%, so the improvement in results did not come from provisioning less. Equity grows with retained earnings after paying out a bit more than half as interest on equity, and it is the denominator against which the return is measured. All levels are in reais, the reporting currency.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-dic-2025): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Portfolio growth. Expanded portfolio of R$1,136.6 billion in June 2026, up 11.6% from a year earlier, with corporate loans growing 14.1%.
• Financial margin. Grew 8.6% in 2025 but fell 3.0% year over year in the first half of 2026 as the reference rate declined.
• Deposits. R$782.5 billion in June 2026, up 21.9% from a year earlier, with time deposits growing 8.8%.
• Terminal growth. The base case reaches +5.0% nominal in reais by year five, barely above expected inflation.

• Ten-year relevance. Credit intermediation and insurance remain necessary; what is up for debate is who provides them.
• Differentiated product. Credit is a nearly undifferentiated product; the difference comes from distribution and cross-selling.
• Market share. 10.4% of system loans and 22.8% of the insurance market; the five largest banks hold 63.4% of deposits.
• Pricing power. Limited: the price of credit is anchored to the reference rate and digital competition pressures fees.
• Behavior in recession. Earnings fell by a third in 2023 from the credit cycle and recovered over two years.

• ✓Capital adequacy (CET1)CET1 11.3% (+3.3pp above the minimum)
• ✓Reserve coverage (allowance / loan book)5.94% of the loan book
• ✕Credit quality (net charge-off rate)3.20% annually
• ✓Value creation (ROTCE − 10% bar)+5pp
• ✓Funding (deposit base)Deposits $727.9 bn

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

ⓘ Has a loan book: credit health (delinquency, coverage, normalized CECL, RoA/RoE) is evaluated separately, not with corporate solvency.

• Capital. Core capital 11.3% against a required 8.0%, with a declared surplus of 3.3 points.
• Liquidity. Short-term ratio at 149.3% and long-term at 120.5%, both with cushion above the minimum.
• Coverage. 152.3% of loans overdue more than 90 days, down from 177.8% four quarters earlier.
• Delinquency. 4.3% overdue more than 90 days, with the micro, small, and medium-enterprise segment pushing the indicator up.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

Capital use is simple and stable: a bit more than half of earnings is paid out as interest on equity —R$12.32 billion net in 2025, 52.47% of the adjusted base— and the rest is retained, where it grows regulatory capital and supports portfolio growth. The buyback is immaterial: R$120 million in the first half of 2026. There are no material acquisitions in the period. The current (forward) dividend is derived from the first-half-2026 pace —R$8.0 billion gross— annualized over shares outstanding, ~R$1.51 per share gross average across classes, before the additional R$6.5 billion advance approved for September 15, 2026; the R$1.165 figure (interest on equity net of withholding) corresponds to the closed fiscal 2025.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Alignment. Control concentrated in a single shareholder over common shares; the certificate corresponds to the preferred share and does not vote.
• Capital allocation. 52.47% of the adjusted base paid out as interest on equity against a statutory floor of 30%; a stable policy.
• Board independence. Four independent directors out of eleven; the issuer itself discloses the potential conflict.
• Buyback. Program authorized for 1.0% of capital and immaterial execution: R$120 million in the first half of 2026.

• Missing buyers due to currency risk: results are generated in reais and the certificate is paid in dollars, so the investor has to take on a currency that depreciated about 27.9% in 2024 before appreciating about 11.16% in 2025. That double swing scares off the dollar-based buyer even though the bank itself has not changed.
• Bottom of an already-past credit cycle: attributable income fell to R$14.25 billion in 2023 and the market remains anchored to that series, when 2025's result —R$23.67 billion— already exceeds the pre-deterioration level.
• Visible pressure from digital competition on the retail base, which the regulatory framework itself facilitates, in a market that is pricing in permanent share loss rather than margin compression.
• The first half of 2026 showed, on the IFRS basis the projection uses, net financial margin falling 3.0% year over year (from R$38.85 to R$37.70 billion) and the expected loss charge on loans rising 4.2%, with attributable income still growing 5.5% year over year; on the management basis the company's own release uses, the financial margin rose 16.0% and the expanded provision expense 24.5%. Neither reading on its own supports a deterioration as sharp as blending the IFRS margin with the management provision would suggest.

The source of the discount is identifiable and positive: currency and country risk on a result that has already normalized. What remains unresolved is whether the first-half-2026 margin compression is transitory.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +9%/year (+53% total): the margin of safety protects the downside. The bull (+22%/year, +172% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Credit cycle. Coverage is being consumed and delinquency is rising: the main risk is that 2025 turns out to be a peak, not a base.
• Reference rate. The issuer states it does not control it and is affected in both directions; it went from 11.75% to 15.00% in two years.
• Currency. Value is generated in reais and the certificate is paid in dollars; the real moved about 28% in a year.
• Taxes. A rate on financial services of 10.85% in 2027 rising to 12.50% in 2033, with key points still unregulated.
• Corporate governance. Concentrated control and four independent directors out of eleven, with the potential conflict disclosed by the issuer.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a PEG of 1.3 → reasonable for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -17% vs our 6%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +0%/yr, bull-scenario ceiling +16%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: efficient scale, cost advantage, switching costs, intangibles → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -17%, within what we project (6%) — the story squares with the numbers.