estimates revision

1

SAFRA Equity Research Estimates Revision

Banco Pan Mid-Sized Banks

Looking to Banco Pan as a Digital Bank; Raising Target Price

After the recent stock rally and more disclosure from PAN’s digital client base, we are

updating our Banco Pan’s (BPAN) model. Therefore, we are setting a new 21YE target-

price of R$28/share (vs. R$14 previously). After BPAN released its digital client’s numbers

we can have a fairer analysis via-a-vis other digital names in the banking industry.

Therefore, to incorporate the new bank dynamic of accelerating customer base growth,

which may bring higher returns in the long run, we adopted a blended valuation

combining our two-stage DDM model, with a valuation based on multiples.

Our call is that the bank is still has room for appreciation in comparison to other digital

banks. In addition, Pan outstrips other digital banks as it already has a huge customer

base and a well-established brand, advantages that are still underpriced in our view.

Therefore, we maintain our confidence that Banco Pan is one of the best bets among

mid-sized banks.

BPAN’s digital thesis is just beginning. Despite the +168% YTD jump in the stock following

a flawless earnings result and the digital client’s disclosure, we continue to believe that Pan

still has room for appreciation. The bank is very well positioned among the mid-sized banks

to surf digital transformation. Unlike most newcomers, BPAN does not need to spend huge

amounts to attract customers and has a longer and solid credit track-record. Thus, we

continue to believe that BPAN’s digital account should accelerate its total customer’s

growth base, supporting credit volumes growth and leveraging service revenues through

products such as: insurance and credit card.

Main changes in our numbers. We made some reductions in our short-term expectations,

but we raised our estimates from 2023 to reflect the results arising from the investments

made by BPAN into the digital platform and in new revenue lines such as the acquiring

business. Thus, we made a slight adjustment in our earnings CAGR 2021-23 estimate from

21.4% to 17.9%, to incorporate higher expenses from the digital bank’s growth

acceleration, which should be monetized in the mid-term.

Still a good upside after the recent stock rally. Our new 21YE TP is set at R$28/share (from

R$14), which now implies a 10% upside, after stock recent rally (+168% YTD). We use the

combination of DDM and an EV/client at a ratio of 67% and 33%, respectively. Our multiple

is based on 17.1MM clients (which is our expectation of BPAN’s customer base in the end

of 2021, at an EV per client multiple of R$ 3.5k (which is still slightly below the average of

some digital bank players such as: Nubank, Inter and C6 Bank).

BPAN’s digital bank story changes its valuation for the short run, as most of BPAN’s

earnings growth should come after 2022. BPAN3 shares are trading at 33.7x P/E22e which

is richer than averages of traditional banks (at 8.8x) and mid-sized banks (at 10.0x), but

below some of digital banks that are still in results ramp up phase (for example BIDI is

trading at 61.9x P/E 22e, which is much above PAN’s adjusted P/E multiple).

BPAN3 Rating Outperform YE21 Target Price R$ 28.0

21E 22E 23E P/E * 36.7x 33.7x 26.4x P/BV 5.6x 5.2x 4.7x Source: Bloomberg, Safra * Adjusted net income

Luis F. Azevedo Analista

+55 11 3175-9341 +55 11 3175 xxxx

[email protected] [email protected]

Silvio Dória Analista

+55 11 3175-7929 +55 11 3175 xxxx

[email protected] [email protected]

June 24, 2021

2


BPAN’s digital thesis is just beginning. Despite strong stock performance following good

results in the previous quarters, Banco Pan’s most surprising figure came from the strong

acceleration on its digital client base (disclosed in 1Q21), which suggests that the bank has

a huge opportunity to monetize its customer base in the future. Unlike most newcomers,

BPAN does not need to spend huge amounts to attract customers. BPAN has launched its

App (digital account) in the beginning of 2020, providing digital accounts with no annual fee

(for current account and credit card services). A short time later, the few numbers released

are quite impressive. The Bank reached in 1Q21, 10.0mln clients, out of which, 6mln with

digital accounts. Assuming the current pace of 40k open accounts/month, we estimate that

the number of digital accounts may double by the end of 2021. BPAN's app download

numbers are a good proxy for how strong such digital client base increase is, compared

with other’s names. Thus, we believe that BPAN’s digital account should accelerate its

total customer’s growth base, supporting credit volumes growth and leveraging service

revenues through products such as: insurance sales and credit card.

BPAN’s client base evolution (Million)

Source: Safra

BPAN now has a complete platform of products and services that combined with the

digital experience can increase the cross-selling revenue. After inaugurating the acquiring

business in 1Q21 for small entrepreneurs (MEIs) and self-employed professionals, BPAN

reached a complete level of products and services that can be offered to its 10MM

customers. In addition to traditional credit products (such as payroll and vehicles loans) the

bank now has a complete range of services, from insurance to acquiring business, and also

partnerships (Getninja, Méliuz, Dafiti, Claro…) that can be leveraged with the digital

platform, generating more engagement and, as a result, higher monetization in its huge

customer base.

A complete (digital) ecosystem to engage and monetize customers

Source: Safra and Company

7,619

17,129

24,877

30,384 33,736

2020 2021E 2022E 2023E 2024E

Growth assumption +40k per working day

CreditTransactional

accountInsurance Savings Acquiring

New initiatives

3


The cross-selling potential of a full-service banking platform has yet to be fully explored,

which makes us confident in our higher expectations for long-term earnings (2023

onwards). To cite just one example, around 30% of the current BPAN's client base are small

entrepreneurs, the target audience of the bank's new acquiring business. In addition,

partnerships also have a potential that is still unexplored. By using the huge customer base

of the GetNinja (~2MM), Meliuz (7MM of active clients) and Mosaico (1MM) Apps, BPAN

further accelerates the growth of its digital customer base, already accustomed to the

experience in the apps and therefore more prone to digital transactions.

Main Changes in our numbers. We made some reductions in our short-term expectations,

but we raised our estimates from 2023 to reflect the results arising from the investments

made by BPAN into the digital platform and in new revenue lines such as the acquiring

business. Thus, our adj. earnings CAGR 2021-23 was reduced from 21.4% to 17.9%, in order

to incorporate higher expenses to accelerate BPAN’s growth. Even though, we still should

see BPAN running at consistent profitability level, with ROE at 17% in 2021.

Still a good upside after the recent stock rally. Our new 21YE TP is set at R$28/share (from

R$14), which now implies a 10% upside, after recent stock rally (+168% YTD). We use the

combination of DDM and a multiple EV/client, at a ratio of 67% and 33%, respectively. Our

multiple is based on 17MM clients being valued at a multiple of R$3.5k per client (which is

still below some of Brazilian digital banks average such as: Nubank, Inter and C6 Bank).

Regarding our DDM model, we assumed 2-stage approach with 22% ROAE for the second

stage, from 2024 until 2029. We changed some valuation assumptions since our last update

(Mar/21). For the 2nd stage, ROE was up 300 bps (to 22%), while in the perpetuity, we

increased it by 400 bps (to 24%), assuming that BPAN may enjoy a higher operating

leverage from the huge customer base and potential service revenues growth. Our

discount rate assumptions remained unchanged as we have not seen changes in BPAN’s

risk scenario since our last update. Therefore, we kept our Ke at 12.8%.

Sensitivity Analysis on blended Valuation – DDM / Multiples (Ev per Client)

Source: Safra

EV/Client assumptions17.1 MM clients (21YE)

R$ 3.5k

DDM Model 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%TP (DDM) 17.4 15.6 13.9 12.1 10.4 8.7 6.9 5.2 3.5 1.7 0.0 Multiple 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%TP (Multiple) - 5.0 10.0 14.9 19.9 24.9 29.9 34.8 39.8 44.8 49.8 Target-price blended 17.4 20.6 23.8 27.1 30.3 33.6 36.8 40.0 43.3 46.5 49.8

Valuation Weighting TP BlendedEV (DDM model) 20,915 67% 11.6 EV/Client 59,952 33% 16.6 Valuation blended 100% 28.2

4


DDM’ Assumptions * Discount Rate Assumptions

Source: Safra * More disclosure on the page 9

Source: Safra

Valuation AssumptionsROE (2nd Stage) 22.0%ROE (Perpetual) 24.0%Payout (Stage 2) 35.0%Earnings Growth 14.3%Perpetuity Payout 68.8%Perpetuity Growth Rate 7.5%ROE - g 16.5%Ke - g 5.3%P/BV 3.11 Book Value of Perpetuity 42,031

Dividends for 2021YE 242

NPV of Dividends 2,841 Terminal Book Value 18,075 Target Equity Value 20,915 Number of Shares 1,205 Target Price 17.4

Discount Rate AssumptionsRisk Free Rate 2.25%Country Risk Premium 2.50%Equity Risk Premium 5.25%Beta 1.25 FX LT devaluation 1.50%Cost of equity 12.81%

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Despite the stretched multiples in comparison to larger retail banks, we believe that

Banco Pan’s digital strategy may create value in the mid-term, combining a broader

range of products and services with more scale, which justifies recent multiple expansion

(and potential higher returns in the long run). Using digital bank valuation metrics we

also see BPAN traded at a discount, which may narrow soon. BPAN3 shares are trading at

33.7x P/E22e which is richer than averages of traditional banks (at 8.8x) and mid-sized

banks (at 10.0x), but below some of digital banks that are still in results ramp up phase (for

example BIDI is trading at 61.9x P/E 22e, which is much above PAN’s adjusted P/E

multiple).

Comp table

Source: Safra and Bloomberg * Before the capital increase expected for Jun, 24th

We also highlight that, with expected improvements in BPAN's main figures (as we said

above) and we see potential for material upside ahead as long as Banco Pan keep

combining strong customer net addition with its capability of monetizing its client base.

Moreover, looking only at traditional and digital banks with different valuation metrics, we

see BPAN still being traded at a discount, even considering a larger customer base than

BPAN. While BPAN is valued at EV per client of R$3.1k (considering 10MM clients), new

names in the banking industry, without having their thesis put to the test, are estimated at

R$3.8k. The traditional banks are trading above BPAN, at R$3.2k per client.

2021 2022 2021 2022 2021 2022 2021 2022

Banks

Banco Pan 30,765 OP 28.0 25.5 10% 5.6x 5.2x - - 36.7x 33.7x 839 914

Itau Unibanco 311,771 OP 38.0 31.8 19% 2.2x 2.0x - - 12.7x 11.3x 24,569 27,615

Bradesco 262,802 OP 32.0 27.0 18% 1.7x 1.5x - - 10.0x 9.3x 26,261 28,227

Santander Brasil 161,116 OP 53.0 43.2 23% 2.0x 1.9x - - 10.2x 9.5x 15,863 16,955

Banco do Brasil 96,546 OP 50.0 33.9 48% 0.7x 0.7x - - 5.5x 5.1x 17,535 19,041

Banrisul 5,681 N 19.0 13.9 37% 0.7x 0.6x - - 5.7x 5.0x 997 1,140

BTG Pactual 112,969 OP 111.0 121.2 -8% 3.5x 3.1x - - 23.2x 19.7x 4,863 5,740

Banco Inter 54,981 Not Rated - 24.2 - 6.6x 6.1x - - 302.8x 61.9x 70 289

Sector avg. (ex-Inter) 1 .8x 1.6x 11.2x 10.0x

Largest Banks 1.7x 1.5x 9.6x 8.8x

Public Banks 0.7x 0.6x 5.6x 5.0x

Mid-Size Banks (ex-Inter) 2 .1x 1.9x 14.5x 12.3x

Δ %P / BV EV / EBITDA P / E Net Income (R$ mln)Current

Price Company

Market Cap

(R$mn)Rating

Target

Price

6


EV/Clients among the digital banks

Source: Safra, Bloomberg and companies * Itau Unibanco valuation excluding the value from XP shares to be distributed to its shareholders in 3Q21.

Complementarity strategy with the controlling partner (BTG Pactual) can bring value in

the long-run. The recent acquisition of Caixa’s PN shares, former co-controller of BPAN, by

BTG Pactual was positive in our view. Under the control of BTG Pactual, BPAN must have

more agility in decision making. In addition, its participation in retail (mainly in the C, D and

E classes), is complementary to the strategy of its sole controller, BTG. Moreover, BTG’s

more active execution to accelerate growth should also be reflected in BPAN, as the retail

business is now a key part of BTG's strategy.

Lower earnings growth expectation due to higher investments is our main downside risk.

We estimate earnings CAGR21-23 of 17.9% over the next 3 years, -3.5 p.p. lower than our

previous model, which reflects higher expenses/investments for the development of the

digital bank and new initiatives (such as the acquiring business, which seems a good

opportunity considering Banco Pan’s customer base profile of lower income bracket, some

of them working as independent micro entrepreneurs).

Main risks to our investment thesis. Our approach to give more value to the digital bank,

raises the risk of the bank not achieving the expected customer base or even if the bank

will not be able to monetize its customer base in the future, moreover the multiple analysis

brings the risk of its peers being overvalued (which could make our valuation stretched).

We also see potential risks coming from competition (mainly coming from new entrants),

macroeconomic slowdown (which may lead to an increase in non-performing loans),

interest rates (a flattening yield curve may pressure BPAN’s NIM) and also regulatory

(coming from the Brazilian Congress) and potential change in Brazilian tax regime.

Clients EV (R$mln) EV/Client (R$)

C6 Bank 4,000 11,300 2,825

Nubank 40,000 153,000 3,825

Banco Inter 11,000 54,981 4,998

Digital bank's avg. 3,883

Banco Pan 10,006 31,187 3,117

Itau Unibanco * 56,000 264,026 4,715

Bradesco 71,000 263,968 3,718

Santander Brasil 51,331 162,645 3,169

Banco do Brasil 74,670 96,546 1,293

Traditional bank's avg. 3,224

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Banco Pan - Previous vs. New Estimates

Source: Safra

Previous New Change Previous New ChangeNet Interest Income 6,198 6,161 -0.6% 6,994 7,308 4.5%Provision Expenses (1,600) (1,572) -1.8% (2,112) (2,184) 3.4%Commissions and Fees 640 804 25.6% 780 1,067 36.7%Operational Expenses (3,981) (4,289) 7.7% (4,170) (4,987) 19.6%

Personnel (629) (701) 11.6% (674) (798) 18.4%Administrative (984) (1,175) 19.4% (1,017) (1,281) 26.0%Origination expenses (1,713) (1,709) -0.2% (1,773) (2,110) 19.0%Tax (348) (380) 9.0% (370) (426) 15.2%Other Op. Income/Expenses (306) (324) 5.7% (337) (373) 10.5%

Income from Operations 1,257 1,104 -12.1% 1,492 1,204 -19.3%Non Op. Income/Expenses 4 (8) -286.8% 3 (0) -104.0%

Income Before Taxes 1,261 1,096 -13.1% 1,495 1,204 -19.5%Income taxes (471) (388) -17.5% (518) (398) -23.2%Reported Net Income 790 708 -10.5% 977 806 -17.5%Adjusted Net Income 923 839 -9.1% 1,094 914 -16.5%

Adj. EPS (R$) 0.77 0.70 -9.1% 0.91 0.76 -16.5%

.

Profitability

ROAE (%) 14.4% 12.8% -1.6 pp 15.6% 13.5% -2.1 pp

Adjusted ROAE (%) 19.6% 17.4% -2.2 pp 18.9% 16.8% -2.1 pp

Efficiency ratio (%) 24.7% 28.3% 3.6 pp 22.7% 26.0% 3.2 pp

Tax rate (%) 37.3% 35.4% -1.9 pp 34.6% 33.0% -1.6 pp

.

Asset Quality

Loan Portfolio 33,658 37,015 10.0% 40,015 45,625 14.0%

NPL 90-day (%) 5.6% 5.3% -0.3 pp 5.7% 5.7% 0.0 pp

R$mn2021E 2022E

8


Banco Pan – YoY Growth

Source: Safra

R$mn 2019A 2020A 2021E 2022E 20 YoY 21 YoY 22 YoYNet Interest Income 4,180 5,368 6,161 7,308 28.4% 14.8% 18.6%Provision Expenses (1,562) (1,431) (1,572) (2,184) -8.4% 9.8% 39.0%Commissions and Fees 418 482 804 1,067 15.5% 66.6% 32.8%Operational Expenses (2,645) (3,531) (4,289) (4,987) 33.5% 21.5% 16.3%

Personnel (502) (574) (701) (798) 14.4% 22.2% 13.7%Administrative (916) (1,030) (1,175) (1,281) 12.4% 14.1% 9.0%Origination expenses (877) (1,347) (1,709) (2,110) 53.6% 26.9% 23.5%Tax (223) (298) (380) (426) 33.6% 27.6% 12.3%Other Op. Income/Expenses (127) (283) (324) (373) 122.1% 14.6% 15.0%

Income from Operations 390 888 1,104 1,204 127.5% 24.4% 9.0%Non Op. Income/Expenses (34) 50 (8) (0) -245.5% -116.9% -98.3%

Income Before Taxes 356 938 1,096 1,204 163.3% 16.9% 9.8%Income taxes 160 (282) (388) (398) -276.6% 37.6% 2.4%Reported Net Income 516 656 708 806 27.1% 8.0% 13.9%Adjusted Net Income 739 877 839 914 18.7% -4.4% 8.9%

Adj. EPS (R$) 0.61 0.73 0.70 0.76 18.7% -4.4% 8.9%

.

Profitability

ROAE (%) 11.4% 12.8% 12.8% 13.5% 1.4 pp 0.0 pp 0.7 pp

Adjusted ROAE (%) 20.0% 20.5% 17.4% 16.8% 0.4 pp -3.1 pp -0.6 pp

Efficiency ratio (%) 31.7% 28.8% 28.3% 26.0% -2.9 pp -0.5 pp -2.3 pp

Tax rate (%) -44.9% 30.1% 35.4% 33.0% 75.0 pp 5.3 pp -2.4 pp

.

Asset Quality

Loan Portfolio 23,785 28,907 37,015 45,625 21.5% 28.0% 23.3%

NPL 90-day (%) 5.5% 6.2% 5.3% 5.7% 0.8 pp -1.0 pp 0.4 pp

9


DDM’ Assumptions Discount Rate Assumptions

.

Source: Safra Source: Safra

Discounted Cash Flow

Source: Safra

Sensitivity Analysis on Blended Methodology: DDM vs. Multiples

Source: Safra

Sensitivity Analysis on Multiples Valuation: EV per client vs. Number of clients

Source: Safra

Valuation AssumptionsROE (2nd Stage) 22.0%ROE (Perpetual) 24.0%Payout (Stage 2) 35.0%Earnings Growth 14.3%Perpetuity Payout 68.8%Perpetuity Growth Rate 7.5%ROE - g 16.5%Ke - g 5.3%P/BV 3.11 Book Value of Perpetuity 42,031

Dividends for 2021YE 242

NPV of Dividends 2,841 Terminal Book Value 18,075 Target Equity Value 20,915 Number of Shares 1,205 Target Price 17.4

Discount Rate AssumptionsRisk Free Rate 2.25%Country Risk Premium 2.50%Equity Risk Premium 5.25%Beta 1.25 FX LT devaluation 1.50%Cost of equity 12.81%

2020 2021 2022 2023 2024 2025 2026 2027 2028Net Earnings 656 708 806 1,087 1,635 1,869 2,136 2,442 2,791 Payout 35% 34% 35% 35% 35% 35% 35% 35% 35%Dividend 229 242 286 380 572 654 748 855 977 Shareholders Equity 5,317 5,710 6,230 6,937 7,929 9,062 10,358 11,840 13,533 Average Shareholders Equity 5,122 5,514 5,970 6,583 7,433 8,496 9,710 11,099 12,686 Discount Factor 1.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 Discount Rate 1.00 1.00 1.13 1.27 1.44 1.62 1.83 2.06 2.33 Discounted Dividends 242 253 299 399 404 409 415 420

EV/Client assumptions17.1 MM clients (21YE)

R$ 3.5k

DDM Model 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%TP (DDM) 17.4 15.6 13.9 12.1 10.4 8.7 6.9 5.2 3.5 1.7 0.0 Multiple 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%TP (Multiple) - 5.0 10.0 14.9 19.9 24.9 29.9 34.8 39.8 44.8 49.8 Target-price blended 17.4 20.6 23.8 27.1 30.3 33.6 36.8 40.0 43.3 46.5 49.8

Valuation Weighting TP BlendedEV (DDM model) 20,915 67% 11.6 EV/Client 59,952 33% 16.6 Valuation blended 100% 28.2

2,500 3,000 3,500 4,000 4,500 10,000 20.7 24.9 29.0 33.2 37.3 15,000 31.1 37.3 43.6 49.8 56.0 17,100 35.5 42.6 49.7 56.8 63.9 20,000 41.5 49.8 58.1 66.4 74.7 25,000 51.9 62.2 72.6 83.0 93.4

Clie

nts

EV per client

10


Safra Analysis and Valuation Scorecard (SAVS) - R$ million

Source: Safra

P&L (R$mn) 2019A 2020A 2021E 2022E YoY Growth (%) 2019A 2020A 2021E 2022E

Revenue From Financial Intermediation 6,405 7,598 6,934 9,770 Revenue From Financial Intermediation16.1% 18.6% -8.7% 40.9%

Expenses on Financial Intermediation (3,788) (3,661) (3,368) (6,031) Expenses on Financial Intermediation 19.9% -3.3% -8.0% 79.0%

Funding operations (2,225) (2,230) (1,797) (3,847) Funding operations 10.2% 0.2% -19.4% 114.1%

NII 4,180 5,368 6,161 7,308 NII 19.6% 28.4% 14.8% 18.6%

Allowance for Loan Losses (1,562) (1,431) (1,572) (2,184) Allowance for Loan Losses 37.0% -8.4% 9.8% 39.0%

NII (after ALL) 2,618 3,937 4,590 5,124 NII (after ALL) 11.1% 50.4% 16.6% 11.6%

Fees 418 482 804 1,067 Fees 10.6% 15.5% 66.6% 32.8%

Personnel expenses (502) (574) (701) (798) Personnel expenses 19.2% 14.4% 22.2% 13.7%

Administrative expenses (1,793) (2,377) (2,884) (3,391) Administrative expenses 21.5% 32.5% 21.3% 17.6%

Other expenses (350) (580) (703) (799) Other expenses -2.5% 65.8% 21.3% 13.5%

Taxes 160 (282) (388) (398) Taxes -167.9% -276.6% 37.6% 2.4%

Net Income 516 656 708 806 Net Income 134.7% 27.1% 8.0% 13.9%

Ajdusted Net Income 739 877 839 914 Ajdusted Net Income 236.2% 18.7% -4.4% 8.9%

Dividends 87 246 242 286 Ratios 2019A 2020A 2021E 2022E

Balance sheet (R$mn) 2019A 2020A 2021E 2022E Efficiency ratio 75.6% 66.8% 66.5% 67.6%

Total assets 32,785 38,524 56,843 97,034 Effective tax rate 44.9% -30.1% -35.4% -33.0%

Cash and equivalents 1,362 1,261 8,654 41,464 Loans to deposits 1.4x 1.4x 1.6x 1.7x

Sec. and derivative instruments 2,376 2,946 3,676 3,676 Loans to equity 5.7x 5.5x 7.0x 7.6x

Credit operations 21,799 27,212 34,397 42,398 Coverage ratio 135.2% 122.9% 95.7% 84.1%

Other assets 7,248 7,105 10,116 9,496 NPL ratio 5.5% 6.2% 5.3% 5.7%

Total l iabilities 32,798 38,524 56,843 97,034 Stock indicators 2019A 2020A 2021E 2022E

Deposits 19,760 21,566 24,718 27,733 Number of units 1,205 1,205 1,205 1,205

Other l iabilities 8,112 11,640 26,415 63,071 Earnings per unit (EPS) 0.6 0.7 0.7 0.8

Shareholders' Equity 4,926 5,317 5,710 6,230 Book value per unit (BVPS) 3.1 3.6 4.0 4.5

Adj Shareholders' Equity 3,689 4,286 4,832 5,441 Dividend per unit (DPS) 0.1 0.2 0.2 0.2

Return analysis 2019A 2020A 2021E 2022E Valuation multiples at target price 2019A 2020A 2021E 2022E

ROAE 11.4% 12.8% 12.8% 13.5% P/E 38.7x 40.5x 37.2x

Net margin 12.3% 12.2% 11.5% 11.0% P/BV 7.9x 7.0x 6.2x

Asset turnover 0.195 0.197 0.122 0.101 Dividend Yield 2.4% 2.3% 2.8%

Leverage factor 6.7x 7.2x 10.0x 15.6x Pay-out ratio 38% 34% 35%

Adjusted ROAE 23.0% 22.0% 18.4% 17.8%

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ANALYST DISCLOSURES

1. The analyst responsible for preparing this document, highlighted in bold, hereby certifies that all opinions expressed in

this report accurately, solely and exclusively reflect his/her personal views and opinions regarding all of the issuers and securities analyzed herein, provided in this document independently and autonomously. Whereas the personal opinions of investment analysts may diverge, Safra Corretora and/or Banco Safra and/or any of their affiliated companies may have published or eventually publish other reports that are inconsistent and/or reach different conclusions than those provided herein.

2. The analyst responsible for preparing this report is not registered and/or not qualified as a survey analyst at the NYSE or FINRA, nor is such analyst in any way associated with Safra Securities LLC (“SSL”), and is, therefore, not subject to the provisions of Rule 2242 on communications with researched companies, public appearances and transactions involving securities held in a research analyst account.

3. An analyst’s compensation is based upon total revenues of Safra Corretora, a portion of which is generated through investment banking activities. Like all employees of Safra Corretora, its subsidiaries and affiliates, analysts receive compensation that is impacted by overall profitability. For this reason, analyst’s compensation can be considered to be indirectly related to this report. However, the analyst responsible for the content of this report hereby represents that no part of his or her compensation was, is, or will be directly or indirectly related to any specific recommendation or views contained herein or linked to the pricing of any of the securities discussed herein. The analyst declares that (s)he does not maintain any relationship with any individual affiliated with the companies or government and does not receive any compensation for services rendered to or have any commercial relationship with the company or any individual or entity representing the interests of the company. The analyst(s) and any member of his/her household do not hold, directly or indirectly, more than 5% of their personal net worth in any securities issued by the companies or government analyzed in this report in his/her personal investment portfolio, nor is (s)he personally involved in the acquisition, sale or trading of such securities in the market. Neither the analyst(s) nor any member of the analysts’ household serves as an officer, director or advisory board member of the companies analyzed in this report. DISCLOUSERS ITEMS

Analysts 1 2 3 4

1. The securities analyst(s) involved in preparing this report are associated with individuals who work for the issuers

addressed herein.

2. The securities analyst(s) spouse(s) or partner(s) hold, either directly or indirectly, on their own behalf or on behalf of third parties, stock and/or other securities discussed in this report.

3. The securities analyst(s), spouse(s) or partner(s) are directly or indirectly involved in the purchase, sale or intermediation of the securities discussed in this report.

4. The securities analyst(s), respective spouse(s) or partner(s) hold, either directly or indirectly, any financial interest related to the securities issuers analyzed in this report.

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IMPORTANT INFORMATION ABOUT SAFRA

Safra Corretora and/or affiliates declare that (i) Have significant financial and commercial relationships and or (ii) receive(s) compensation for services rendered to the following company(ies): Cia Brasileira de Distribuição - CBD, Grupo Carrefour Brasil, Grupo Mateus, Hypera Pharma, Lojas Renner, Lojas Americanas S/A, Via Varejo S/A, B2W Digital, Estácio, Kroton, Ser Educacional, RD (Raia Drograsil), Fleury, Rede D’Or São Luiz, Grupo Energisa, Equatorial Energia, AES Tietê Energia S/A, Cia Energética de São Paulo (CESP), Engie Brasil, Alupar Investimento S/A, TAESA, Cia Energetica de Minas Gers CEMIG (Cemig), Cia Paranaense de Energia (Copel), EDP Brasil, Centrais Eletricas Brasileiras S/A (Eletrobras), Light S/A, Cia de Saneamento de Minas Gerais (Copasa), Braskem, Grupo Ultra (Ultrapar), Petroléo Brasileiro S/A (Petrobrás), Petrobrás Distribuidora, Suzano S.A, Klabin S/A, Cia de Gás de Minas Gerais (Gasmig), Raízen Energ, Neoenergia, Cia Energética do Rio Grande do Norte (Cosern), PetroRio S.A, CPFL Energia, Vale S/A, Gerdau, Metalurgica Gerdau, Usinas Siderurgicas de Mins Grs S/A (Usiminas), Cia Siderurgica Nacional (CSN), Telefônica Brasil, Tim Participações S/A, Itaú Unibanco, Itausa S/A, B3 S/A - Brasil Bolsa Balcao, Cielo, Porto Seguro Seguros, Sul America S/A, Banco BTG Pactual S/A, Banco Pan, Linx, Grupo CCR, Embraer S/A, Localiza, Locaweb, Movida Participações S/A, Tegma Gestão Logística, Rumo S/A, Cosan Logística S/A, Iochpe-Maxion, Duratex S/A, Mahle Metal Leve S/A, Marcopolo S/A, Randon S/A, Tupy, Weg S/A, Grupo JSL, Santos Brasil, Fras-le S/A, Gol Linhas Aéreas, Azul S/A, Cyrela, Even, Helbor, MRV, Tecnisa, Iguatemi Empresa de Shopping Centers, Cyrela

Commercial Properties (CCP).

3Z Realty Desenvolvimento Imobiliário S.A, Aegea, Agroterenas S.A, Austral, BRF S/A, Barzel Fundo de Investimento Imobiliário, BBM Logística, BR Properties Fundo de Investimentos Imobiliário, Cimed Remédios LTDA, CM Hospitalar S.A, Colombo Agroindústria S.A, Conasa Infraestrutura S.A, Cosan S.A, CSN Cimentos S.A, FII JS Ativos Financeiros, GLP Logística Fundo de Investimento Imobiliário, Kazzas Incorporações e Construções S.A, Marfrig Global Foods S.A, Multilaser, Raízen, Rede D’Or São Luiz, Sendas Distribuidora S.A, Viação Piracicabana S.A, 1º Emissão BTG Terras Agrícolas - FII, 1º Emissão Mauá Hedge Fund - FII, 2ª emissão Alianza Multioffices FII, 2ª emissão Barzel – FII, 2ª emissão Quatá Imob FOF FII, 2º emissão Rio Bravo CI HY - FII, 3ª emissão Alianza FOF - FII, 3ª emissão FII Rec Logística, 3ª emissão Polo Recebíveis Imobiliários II – FII, 4ª emissão Devant Recebíveis Imobiliários, 5ª emissão RBR Properties – FII, 6ª emissão RBR High Grade – FII, Banco BTG Pactual S.A, Ecorodovias Infraestrutura e Logística S.A, Getninjas S.A.

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IMPORTANT GLOBAL DISCLOSURES

1. This report was prepared by Safra Corretora de Valores e Cambio Ltda (“Safra Corretora”), a subsidiary of Banco Safra

S.A., a company regulated by the Brazilian Securities and Exchange Commission (CVM). Safra Corretora is the responsible for the distribution of this report in Brazil.

2. This report is for distribution only under such circumstances as may be permitted by applicable law. This report is not directed at you if Safra Corretora and/or Banco Safra is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Safra Corretora and/or Banco Safra are permitted to provide research material concerning investments to you under relevant legislation and regulations.

3. This report is provided for informational purposes only and does not constitute or should not be construed as an invite, solicitation, offer or inducement to buy or sell any financial instrument or to participate in any particular trading strategy in any jurisdiction.

4. The information herein was deemed reasonable on the date of publication and was obtained from reliable public sources. Safra Corretora does not ensure or guarantee, either expressly or implicitly, that the information contained herein is accurate or complete. Safra Corretora has no obligation to update, modify or amend this report and informs the reader accordingly, except when terminating coverage of the companies discussed in the report. The Opinions, estimates, information and/or forecasts expressed in this report constitute the current judgment of the analyst responsible for the content of this report as of the date in which it was issued and are therefore subject to change without notice. The prices and availability of the financial instruments are merely indicative and subject to change beyond the control of Safra Corretora. Safra Corretora are not obligated to update, amend or otherwise alter this report, or to inform readers of any changes in its content, except upon termination of coverage of the securities issuers discussed herein.

5. Due to international regulations, not all financial services/instruments may be available to all clients. You should be aware of and observe any such restrictions when considering a potential investment decision.

6. The financial instruments discussed in this document may not be available or suitable for all investors. This report does not take under consideration the specific investment objectives, financial situation or needs of any particular investor. Investors who intend to purchase or trade the securities covered in this report must seek out the applicable information and documents in order to decide whether to invest in such securities. Investors must independently seek out financial, accounting, legal, economic and market guidance, based on their personal characteristics, before making any investment decision regarding the securities of the issuers analyzed in this report. Each investor must make the final investment decision based on a range of related risks, fees and commissions. In all cases, investors should conduct their own investigation and analysis of such information before taking or omitting to take any action in relation to securities or markets that are analyzed in this report.

7. The report should not be regarded by recipients as a substitute for the exercise of their own judgment. Opinions, estimates, and projections expressed herein constitute the current judgment of the analyst responsible for the substance of this report as of the date on which the report was issued and are therefore subject to change without notice and may differ or be contrary to opinions expressed by other business areas of Banco Safra as a result of using different assumptions and criteria.

8. In the event that a financial instrument is expressed in currencies other than the one used by the investor, exchange rate variations may adversely affect the price, value or profitability. Financial instrument yields may vary, ultimately increasing or decreasing the price or value of financial instruments, either directly or indirectly. Past performance is not necessarily indicative of future results, and this report does not ensure or guarantee, either expressly or implicitly, any possible future performance or any other aspect thereof. Safra Corretora and its affiliated companies may not be held liable for eventual losses, either direct or indirect, arising from the use of this report or its content. Upon using the content herein, investors undertake to irrevocably and irreparably hold Safra Corretora and/or any of its affiliated companies harmless against any claims, complaints, and/or losses.

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9. Any opinions, estimates, and projections must not be construed as a representation that the matters referred to therein will occur. Prices and availability of financial instruments are indicative only and subject to change without notice. Research will initiate, update and cease coverage solely at the discretion of Banco Safra.

10. This report may not be reproduced or redistributed to any other person, in whole or in part, for any purpose, without the prior written consent of Safra Corretora. Additional information relative to the financial instruments discussed in this report is available upon request.

Additional Disclaimer for reports distributed for in the: USA: Safra Securities LLC (“SSL”), a FINRA/SIPC member firm, is distributing this report in the United States and accepts responsibility for the content of this report. SSL assumes responsibility for this research for purposes of U.S. law. Any US Investor who receives this report and intends to trade any of the securities addressed herein must do so through Safra Securities LLC at 546 5th Ave, 2nd Floor, New York, NY. UK AND EUROPEAN ECONOMIC AREA (EEA): The communication of this report is not being made and has not been approved by an authorised person for the purposes of FSMA 2000 (United Kingdom Financial Services and Markets Act), Section 21. Accordingly, the report is not being distributed to, and must not be passed on to, the general public in the United Kingdom, and is only for circulation to persons outside the United Kingdom or to persons within the United Kingdom falling within the definition of investment professionals (as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order), or to other persons to whom it may lawfully be communicated in accordance with the Order. While all reasonable effort has been made to ensure that the information contained is not untrue or misleading at the time of publication, no representation is made as to its accuracy or completeness and it should not be relied upon as such. Past performances offer no guarantee as to future performances. All opinions expressed in the present document reflect the current context and which is subject to change without notice. OTHER COUNTRIES: This report, and the securities discussed herein, may not be eligible for distribution or sale in all countries or to certain categories of investors. In general, this report may be distributed only to professional and institutional investors. By accessing this report, you confirm that you are aware of the laws in your jurisdiction, relating to the provision and sale of financial service products and acknowledge that this material contains proprietary information and you are to keep this information as a confidential information, additionally, you confirm that you understand the risks related to the financial instruments discussed. Due to international regulations, not all financial services/instruments may be available to all clients.

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RATINGS CRITERIA

Safra Corretora attributes specific ratings to the shares traded in the securities and exchange business based on the following criteria: We set for each share a required return rate calculated from the cost of capital for the local securities market. The target price for a particular share represents the fair value of a company calculated by the analyst for a specific date which is currently set as the end of 2020 or 2021. Such fair value is calculated by several metrics out of which the discounted cash flow being the most used one. followed by the models of residual profit discounted dividends and sum-of-the-parts. Sector multiples are used to compare companies from the same sector. The expected return is equivalent to the percentage difference between share’s current price and its target price added to the estimated dividend return. The stock-guide is an investment guide for shares in which Safra’s coverage universe is defined. It is segmented into the most representative Bovespa’s sectors. presenting the major indicators followed by investors such as: target price. expected return, rating, estimates for net income and cash generation. market multiples such as P/E. EV/EBITDA and dividend-yield. The analyzed sectors are currently composed of financial financial services capital goods consumption & retail education. health care utilities and sanitation transportation and natural resources. Shares rated as OUTPERFORM are expected to report a performance in the stock exchange above the average return within the coverage group defined by the stock-guide. Shares rated as UNDERPERFORM are expected to report a performance in the stock exchange below the average return within the coverage group defined by the stock-guide. Shares reporting performances between the two aforementioned ranges are rated as NEUTRAL. Our ratings are continuously reviewed according to such ranges whenever a meaningful alteration is carried out (initiation of coverage. alteration of a volatility scenario or related to the target price). Nevertheless, and although the ratings are subject to an administrative revision on a constant basis. the expected returns shall be allowed to float beyond the ranges as a result of normal floating in the shares prices without necessarily having to alter their ratings.

estimates revision

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