Expanding Financial Horizons With A Cutting-Edge Super App And AI Innovations

Key Takeaways

• Inter & Co's Super App and innovation initiatives leverage diverse services and AI solutions, enhancing customer engagement, sales conversions, and monetization.
  
• Expansion in credit offerings and business accounts boosts net interest margin and revenue growth, while maintaining asset quality aids profitability amidst challenges.
  
• Potential challenges include reliance on non-IFRS data, credit risk management, high-cost structure, and risks in international and consumer finance expansion.

Catalysts

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

• The growth of Inter & Co's financial Super App, which includes offerings beyond traditional banking in multiple countries, is expected to bolster revenue by expanding customer engagement across diverse services.
  
• The increase in client base to 35 million with high engagement rates indicates potential for higher cross-selling and upselling opportunities, likely boosting net margins through increased transaction volume and product uptake.
  
• The innovation initiatives, such as hyperpersonalization and AI-driven solutions in e-commerce, aim to improve customer targeting and sales conversions, supporting earnings growth by enhancing monetization channels.
  
• The expansion and improvement of credit offerings, like Consumer Finance 2.0 products, and the focus on maintaining high asset quality, are designed to enhance Net Interest Margin (NIM), supporting profitability despite potential macroeconomic challenges.
  
• Continued growth in business accounts, with a 22% year-over-year increase, suggests potential revenue growth from increased ARPAC and fee income derived from small
• and medium-sized enterprises.

Inter & Co Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Inter & Co's revenue will grow by 37.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.7% today to 21.4% in 3 years time.
• Analysts expect earnings to reach R$2.3 billion (and earnings per share of R$5.88) by about November 2027, up from R$782.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as R$2.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 1.8x on those 2027 earnings, down from 18.7x today. This future PE is lower than the current PE for the US Banks industry at 12.8x.
• Analysts expect the number of shares outstanding to decline by 3.53% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.07%, as per the Simply Wall St company report.

Inter & Co Future Earnings Per Share Growth

Risks

• The use of non-IFRS financial information alongside IFRS data could create difficulties comparing financial performance and potentially obscure true profitability, impacting investor confidence and stock valuations.
  
• Despite rapid client growth and high engagement, if the company fails to maintain asset quality or effectively manage credit risk, it could lead to increased non-performing loans, which would impact net margins negatively.
  
• Intense focus on expanding consumer finance amidst macroeconomic uncertainty could expose Inter & Co to higher default risks, potentially affecting revenue and earnings.
  
• The integration of Inter Pag with its high-cost structure could pose challenges and delay improvements in operational efficiency, potentially impacting net income and the achievement of efficiency targets.
  
• Plans to grow through international expansion with an asset-light approach could involve significant risks, including regulatory challenges and competition, which might affect revenue growth prospects.

Valuation

• The analysts have a consensus price target of R$7.8 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 R$10.0, and the most bearish reporting a price target of just R$4.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be R$10.8 billion, earnings will come to R$2.3 billion, and it would be trading on a PE ratio of 1.8x, assuming you use a discount rate of 11.1%.
  
• Given the current share price of R$5.77, the analyst's price target of R$7.8 is 26.0% 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.