Development In Loyalty Programs Like Loop Will Increase Customer Retention

Key Takeaways

• Inter & Co's initiatives in digital payroll and global services are poised to drive revenue growth through digital efficiency, diversification, and client expansion.
  
• Strategies like Consumer Finance 2.0 and marketplace widening aim to boost revenue streams and net margins via enhanced credit quality and cross-selling.
  
• The rapid expansion and high-risk finance products may strain resources and impact financial health, potentially obscuring true revenue and earnings.

Catalysts

Through its subsidiaries, engages in the banking and spending, investments, insurance brokerage businesses.

• Inter & Co's digital payroll offering, which now accounts for over 50% of new underwritings, is expected to drive future credit revenue growth by leveraging digital efficiency and expanding within their clientele.
  
• The expansion of Inter & Co's global services, including the introduction of dollar credit cards, is anticipated to enhance revenue from international markets and diversify the customer base, positively impacting overall earnings.
  
• The Consumer Finance 2.0 initiative, focusing on PIX Financing and Buy Now, Pay Later schemes, is set to boost the company's revenue streams while maintaining credit quality, thus supporting improved net margins.
  
• The widening of Inter & Co's marketplace platform through integrated commerce and finance solutions is projected to contribute to higher fee revenues and service penetration, augmenting net margins through increased cross-selling opportunities.
  
• Continued development in loyalty programs like Loop, and targeted customer engagement strategies, are expected to increase customer retention and activation rates, which will enhance recurring revenue per active client and drive sustainable earnings growth.

Inter & Co Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Inter & Co's revenue will grow by 35.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 19.7% today to 23.0% in 3 years time.
• Analysts expect earnings to reach R$2.7 billion (and earnings per share of R$5.5) by about April 2028, up from R$907.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.7x on those 2028 earnings, down from 16.8x today. This future PE is lower than the current PE for the US Banks industry at 10.7x.
• Analysts expect the number of shares outstanding to grow by 0.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.44%, as per the Simply Wall St company report.

Inter & Co Future Earnings Per Share Growth

Risks

• The use of non-IFRS financial measures may obscure the true financial health of the company, leading to potential discrepancies in actual revenue and earnings.
  
• Despite a strong growth year, the company faces the challenge of maintaining profitability in a high-interest rate environment, which could impact net interest margins and earnings.
  
• The high cost of risk at 5% to 5.2% remains a concern, particularly with the expansion into higher-risk consumer finance products, which may affect net margins.
  
• The rapid pace of expansion and new product launches could strain resources and execution, potentially impacting revenue growth and operational efficiency.
  
• The competitive landscape for low-cost funding could increase funding costs, impacting financial margins and future earnings.

Valuation

• The analysts have a consensus price target of $6.815 for Inter & Co based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $8.0, and the most bearish reporting a price target of just $4.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$11.5 billion, earnings will come to R$2.7 billion, and it would be trading on a PE ratio of 8.7x, assuming you use a discount rate of 10.4%.
• Given the current share price of $6.04, the analyst price target of $6.81 is 11.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.