Grupo Financiero Galicia (GGAL)

Total return at 5 years: 10.0%/year = 9.6% appreciation + 0.4% dividend. The target price ($70) is ex-dividend; the $1 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $125 · Multiples $57) exceeds the market price ($44).

Today — fairly valued: at $44 trades ~22.4% below its value discounted to today (~$57); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($70) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

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 ~$36.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($44) 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 (-11.7%/year) than we project (10.8%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~ARS 472 bn of owner earnings in year 5 (vs ~ARS 1,464.5 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.

Equity-level model: equity is valued by normalized earnings and multiple, because at a bank deposits and issued debt are business funding and not capital structure to be subtracted again. Year-0 is the fiscal year closed on Dec 31, 2025 and not a twelve-month window: under IAS 29 each filing restates the series to the currency of its own closing date, so chaining quarters from different filings mixes units and produces a company that appears to shrink. All amounts are in December 2025 pesos, the currency in which the 20-F homogenizes the three fiscal years presented. Year-0 earnings is not the reported result of Ps. 212.5 billion: it is the normalized earnings power of Ps. 877 billion, which comes from applying the 11.3% return on equity the company itself reports for the second quarter of 2026 —a ratio, neutral to the restatement unit— to parent equity at fiscal year-end. Conversion to dollars happens only once, at the close of the cascade, at the ADR's implied parity, which represents ten Class B shares.

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 $70 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $44, 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 $70 in 5 years plus $1 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 $57. Against the current market price ($44), the margin of safety is 22.4% (trades below the maximum → there is margin) and the total return at that price would be 10.0% annually.

• Entry multiple. 13× on normalized earnings and 1.44 times the parent's book value at fiscal year-end.
• Dependence on re-rating. The exit multiple of 8× is practically the entry multiple: the return comes from earnings and distribution, not from an expansion.
• Sensitivity to normalization. The entire valuation hangs on the cost of risk receding from 11.6% of the gross loan book toward about 8%: it is the single, dominant assumption.
• Scenario range. The adverse case anchors on the annualized half-year and the favorable case on fiscal year 2024 net of the one-time item: both extremes are observed data.

• Predictable cash generation. The result depends on the cost of risk, which moved from Ps. 546.2 to Ps. 2,947.2 billion in two years: predictable it is not.
• Sustained return on capital. Normalized return on tangible equity runs around 11.9% today and 13.6% by year 5 (average-basis): above the 10% bar, but at the low end of the band.
• Reinvestment runway. Private credit is 10.3% of GDP against much higher levels in the region: the runway to reinvest capital at a good return is long.
• Accounting distortions. Inflation adjustment restates the series with each filing, and the Ps. 1,511.5 billion result from monetary position is seven times reported net income.

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's engines are volume times spread: the loan book multiplied by the intermediation margin, minus the cost of risk. That is why the series that decides the result is not revenue growth but delinquency and the cost of risk, which in one year took earnings from Ps. 2,115.5 to Ps. 212.5 billion without pre-provision income falling more than 11%. Market shares measure the other side: how much of the system the group captures while the system as a whole consolidates.

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).

• Balance-sheet growth. Private-loan share from 10.93% to 14.31% in two years and 15.1% by the second quarter of 2026, though bought rather than earned.
• Pre-provision income. Fell 11.1% in real terms in 2025 after rising 3.3% in 2024: disinflation compresses the margin before volume offsets it.
• Market deepening. Private deposits at 12.2% of GDP and credit at 10.3%: the entire market can multiply without anyone gaining share.
• Terminal growth. Near 8% real annually by year 5 in the base case, sustained by loan-book volume and not by margin expansion.

• Recurrence and predictability. Deposit base of Ps. 27,668.9 billion and 5.2 million clients; the business is recurring but the result is highly sensitive to the local macroeconomic cycle.
• Differentiated product. Credit and deposits are undifferentiated products; differentiation comes from the network, the brand and income segmentation through two brands.
• Pricing power. Limited: the 20-F itself states that competition from digital banks forces it to offer lower rates than it otherwise would.
• Operating leverage. The efficiency ratio improved from 40.9% to 35.0% in one year with the HSBC integration: fixed cost is spread over a larger base.
• Recession behavior. Weak: attributable income fell 90% in real terms in 2025 on the cost of risk, with pre-provision income falling only 11%.

• ✓Capital adequacy (CET1)CET1 25.9% (+17.9pp above the minimum)
• ✓Reserve coverage (allowance / loan book)8.65% of the loan book
• !Value creation (ROTCE − 10% bar)+2pp
• ✓Funding (deposit base)Deposits $27,668.9 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. Banco Galicia Tier 1 capital of 25.9% against a reference minimum requirement of 8%, with a surplus of Ps. 4,685.3 billion (the group consolidated with Naranja X publishes a capital ratio of 23.7%).
• Liquidity. Deposits of Ps. 27,668.9 billion against loans of Ps. 23,273.4: the loan book is funded with deposits and not with the wholesale market.
• Asset quality. Delinquency of 10.6% and non-performing-portfolio coverage of 93.3%, versus 5.5% and 117.9% a year earlier.
• Sovereign exposure. Ps. 6,693.9 billion to the public sector, around 111% of Banco Galicia's net equity.

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.

The group is funded with its own earnings: deposits are operating funding and not shareholder capital. Over the period, allocation was split between retention to support regulatory capital, the distribution capped by the Central Bank at 60% of earnings, and the HSBC purchase. There is no share buyback; on the contrary, the share count rose from 1,483 to 1,604 million Class B shares from the issuance tied to that acquisition.

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

• Alignment. The controlling shareholders have effective control with 24% of capital and 55.3% of votes: they have skin in the game but the rest of the shareholders lack a decisive voice.
• Capital allocation. The HSBC purchase nearly doubled market share in two years, but it was funded in part with an issuance and arrived alongside credit deterioration.
• Return of capital. No buybacks; the share count rose 8% from the acquisition issuance. Distribution is limited because most of the 2024-2025 result is holding gains that do not meet Article 68 of the Corporations Law for distribution.
• Transparency. The quarterly release publishes delinquency, coverage, cost of risk and capital with comparable series, which is more than the system average publishes.

• Motivated seller from a result that missed: fiscal year 2025 showed a 90% drop in attributable income, and a loan-loss provision charge 2.6 times the prior year's sinks the accounting result without destroying the value of the franchise.
• Missing buyers by domicile: a company that operates entirely in Argentina trades in New York, with accounting under inflation adjustment that makes figures from different filings incomparable and discourages coverage.
• A restriction that is visible but misread by the market: what cut the dividend was not a regulatory cap but the fact that most of the 2024 and 2025 result is holding gains, which does not meet the realized-and-liquid-earnings requirement of Article 68 of the Corporations Law; the 20-F itself states that Banco Galicia will not be able to pay dividends out of 2025 earnings, and the dividend yield collapsed at the same time as the price.
• The second quarter of 2026 showed a return on equity of 11.3% and an efficiency ratio of 35.0%, the best of the published series, with the half-year result still depressed by the cost of risk.

The subsequent event is declared: the August 25, 2026 release shows half-year earnings 25% below the prior half-year, with delinquency still rising. The opportunity, if it exists, is that the market is extrapolating the peak of the cost of risk as if it were permanent.

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 -3%/year (-14% total): the margin of safety protects the downside. The bull (+17%/year, +117% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Credit cycle. Delinquency nearly doubled in one year and coverage fell below 100%: the loan-loss provision charge may not have peaked.
• Sovereign risk. Public-sector exposure exceeds the bank's equity; the filing states that its ability to generate income depends on public repayment.
• Dividend regulation. Most of the 2024-2025 result is holding gains and does not meet the realized-and-liquid-earnings requirement of Article 68 of the Corporations Law; the 20-F itself states that Banco Galicia will not be able to pay dividends out of 2025 earnings.
• Currency and exchange controls. The business generates pesos and the ADR is paid in dollars; capital controls can restrict transfers abroad.
• Corporate governance. Dual-class shares: the controlling shareholders hold 24% of capital and 55.3% of votes, without needing agreement from the rest of the shareholders.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROTCE 12% above the 10% bar, but the margin is limited (+22%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 11% at a PEG of 1.2 → cheap 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 -12% vs our 11%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -3%/yr, bull-scenario ceiling +16%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: efficient scale, cost advantage, switching costs, intangibles → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -12%, within what we project (11%) — the story squares with the numbers.