Expansive Growth In Chilean Financial Markets Through Innovative Tech And Tactical Acquisitions

Key Takeaways

• Diversification and strategic acquisitions in new sectors might strengthen Credicorp's revenue resilience and long-term earnings growth.
  
• Deepening market penetration and technological adoption could enhance revenue opportunities and improve net margins.
  
• The company faces challenges with loan growth and interest margins due to economic factors, while strategic diversification and regulation could impact revenue streams and compliance costs.

Catalysts

Provides various financial, insurance, and health services and products primarily in Peru and internationally.

• Credicorp's strategy to diversify revenue streams and aim for 10% of risk-adjusted revenues from new businesses by 2026 indicates a strengthening of their resilience, which could positively affect revenue growth.
  
• The company is focusing on deepening market penetration and accelerating the adoption of transformative technologies, potentially impacting revenue and net margins positively.
  
• Regulatory developments, like Peru's pension system reform, are expected to enhance financial security and stimulate economic growth, benefiting Credicorp's potential for revenue growth and earnings.
  
• The expansion into the Chilean market with Tenpo Bank Chile and the growth of digital platform Yape suggests increased revenue opportunities and market share enhancements, potentially improving net margins.
  
• The acquisition of Asistencia Médica and a focus on the insurance and healthcare sectors highlights strategic growth in high-potential areas, which could bolster revenue and long-term earnings growth.

Credicorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Credicorp's revenue will grow by 14.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 30.1% today to 29.2% in 3 years time.
• Analysts expect earnings to reach PEN 7.5 billion (and earnings per share of PEN 94.19) by about November 2027, up from PEN 5.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as PEN 6.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 2.7x on those 2027 earnings, down from 11.2x 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 remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.48%, as per the Simply Wall St company report.

Credicorp Future Earnings Per Share Growth

Risks

• The forecasted GDP growth rates of 3% for 2024 and 2.8% for 2025 may not be sufficient to drive significant loan growth, especially considering the ongoing geopolitical risks, which could impact revenue and net interest margins.
  
• The slight increase in inflation, now at 2%, could lead to uncertainty in interest rate expectations, potentially impacting earnings through variations in net interest margins.
  
• The contraction in loans, notably a 3% decrease in quarter-end balances, driven primarily by corporate loans at BCP and Mibanco, suggests that growth in lending revenue might be constrained.
  
• The focus on new business streams aiming for 10% of risk-adjusted revenues by 2026 highlights current pressure on existing revenue streams, posing risks if these diversification efforts do not materialize as planned.
  
• Despite investments in innovation and digital capabilities, regulatory changes impacting operations, such as those in Bolivia, indicate potential risks in maintaining fee income and managing compliance costs.

Valuation

• The analysts have a consensus price target of PEN 204.6 for Credicorp 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 PEN 224.0, and the most bearish reporting a price target of just PEN 160.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be PEN 25.7 billion, earnings will come to PEN 7.5 billion, and it would be trading on a PE ratio of 2.7x, assuming you use a discount rate of 7.5%.
• Given the current share price of PEN 192.84, the analyst's price target of PEN 204.6 is 5.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.