Inter & Co: Financial Super App Faces A Growth Test In 2024

seekingalpha04-04

Inter & Co is generating strong growth through its Fintech platform as a digital bank in Brazil.The company has expanded operations into the United States with a plan to double its client base over ...

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GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4682006-inter-and-co-financial-super-app-faces-a-growth-test-in-2024><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Inter & Co is generating strong growth through its Fintech platform as a digital bank in Brazil.The company has expanded operations into the United States with a plan to double its client base over ...</p>\n\n<a href=\"https://seekingalpha.com/article/4682006-inter-and-co-financial-super-app-faces-a-growth-test-in-2024\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0229945570.USD","symbol_name":"TEMPLETON BRIC \"A\" (USD) 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Ltd."},"translate_title":"Inter&Co：金融超级应用在2024年面临增长考验","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SQ":1,"PYPL":1,"PAGS":1,"NU":1,"BBD":1,"ITUB":1,"INTR":1,"BSBR":1},"content_text":"Inter & Co is generating strong growth through its Fintech platform as a digital bank in Brazil.The company has expanded operations into the United States with a plan to double its client base over the next few years.While benefiting from solid fundamentals, a backdrop of high expectations in a highly competitive market should keep shares volatile.   vorDa/iStock via Getty ImagesInter & Co, Inc. (NASDAQ:INTR) has crossed our radar with a 230% rally over the past year, emerging as one of the hottest Fintech names in the market. The Brazilian bank has found success through its financial \"Super App\" which combines banking, payments, lending, investments, insurance, travel services, and even shopping with more than 30 million current clients. Taking a deep dive into the company, there's a lot to like about INTR with impressive operational and financial trends. Notably an expansion into the U.S. last year represents a new growth driver. On the other hand, we believe 2024 will be a critical year for the company to confirm its continued momentum in what remains a highly contested market segment. A backdrop of high expectations adds to risks which could drive a new round of volatility into the stock. Data by YChartsINTR Financials Recap INTR last reported its Q4 results in February with a headline net income of BRL 160 million (approximately $32 million), up from BRL 29 million in Q4 2022. This was the company's fifth consecutive quarter of profit growth as net revenue of BRL 1.3 billion ($263 million) climbed by 31% year-over-year reaching an 8.5% return on equity. From 30.4 million total clients, up 23.1% y/y, the growth in active clients at 16.4 million was even stronger at 30.4%. A key metric here is the client acquisition cost which has declined by -19% y/y, with a lower level of marketing and operational costs as a percentage of revenue adding to profitability. This dynamic is also reflected in an improving efficiency ratio source: company IRInterest income from loans has been a big part of the earnings story, up 47% y/y while fee-based revenues from services and commissions were also 38% higher in the quarter. The gross loan portfolio ended 2023 at BRL 31.0 billion, up 26% y/y. All major lending products posted growth, led by real estate and the credit card business. If we can highlight one weakness, non-performing loans ((NPL's)) over 90 days at 4.6% climbed by 4.1% in Q4 2022 based on the shifting mix. Nevertheless, the coverage ratio as a measure of asset quality remains stable at 132%. source: company IRWe mentioned the expansion into the U.S. market. Inter now counts on 2 million \"global clients\" with $121 million in US Dollar deposits in addition to $198 million in assets under custody. This is important as it provides a low cost of funding in support of the Brazilian operations. The strategy here aims to initially target an expat Brazilian population with services like remittances, credit cards, and traditional banking solutions. Management notes that active global clients are utilizing 3x more products than the typical user in Brazil highlighting the income potential. source: company IRWhat's Next For INTR? What we like about Inter & Co is its tech-centric model and relatively unique approach of offering \"everything\" through its mobile platform. The core business is lending, but the idea here is to open the door for potential customers enticed by one of the smaller ancillary products. The growth numbers speak for themselves and it's clear management is doing something right which is to be commended. source: company IRIn terms of guidance, the group set forth a 5-year plan in 2022 targeting 60 million total clients by 2027, taking the efficiency ratio toward 30% and driving return on equity to 30% compared to 9% this past year. On this point, we're skeptical of whether that ambitious goal to double its current total client level over the next four years is achievable. Following the acquisition of what may have been a low-hanging cohort of users during an early growth stage, the challenge we see is that the next 30 million clients will be more difficult. The company will need to make traction outside of retail and into more small- and medium-sized business customers. source: company IREven hitting 50 million over the period would be impressive, but managing expectations becomes important considering the stock price appreciation likely already incorporating many of these positives. According to consensus estimates, INTR is expected to grow revenue this year by 28% as a continuation of the trends from recent quarters. The market then sees that level normalizing under 20% by next year while EPS is stronger benefiting from the larger operating scale. source: company IRIn our view, there is likely some downside risk to these estimates, particularly if the client growth number begins to disappoint. This is in the context of what is already a crowded field in terms of Brazilian Fintech including larger competitors Nu Holdings Ltd. (NU) and PagSeguro Digital Ltd. (PAGS) that offer many of the same \"super app\" solutions. We can also bring up the legacy Brazilian banks from Itau Unibanco Holding S.A. (ITUB), Banco Bradesco S.A. (BBD), and Banco Santander Brasil S.A. (BSBR) which are increasingly moving towards a digital model. We find that INTR trading at a price-to-book value of 1.6x is comparable to PAGS, ITUB, and BSBR at a similar multiple of around a 1.7x average. Not necessarily over or under-valued. In this case, INTR stands out at a deep discount to Nu Holdings which trades at a 9x price to book multiple but materially larger with 94 million customers covering 53% of the Brazilian adult population. Simply put, the addressable market only goes so far, and it's unclear how Inter will incrementally capture market share going forward. Globally, Inter's weakness is its lower brand recognition where it begins to compete with names like PayPal Holdings, Inc. (PYPL) and Block, Inc. (SQ) in the United States. Data by YChartsFinal Thoughts We rate INTR as a hold balancing the recent financial strength against uncertainties in the outlook over the next few years. The company will need to continue delivering strong quarterly results to set the stage for another leg higher in the stock. Keep in mind that with operations primarily in Brazil, Inter & Co earnings are exposed to FX variations which could work in its favor if the Brazilian Real appreciates against the U.S. Dollar. That also becomes a risk in a scenario where macro conditions lead to some risk aversion toward emerging markets or Brazilian stocks.  Monitoring points for the company in 2024 include the trend in client engagement, loan portfolio metrics, and profitability ratios.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2424876814"}