Digital Monetization And Financial Inclusion Will Drive Powerful Long Term Earnings Expansion

Catalysts

About Credicorp

Credicorp is a leading diversified financial services group in Latin America, focused on banking, microfinance, insurance, pensions and digital financial solutions.

What are the underlying business or industry changes driving this perspective?

• Rapid monetization of Yape and the broader digital ecosystem, with revenue expected to triple by 2028 as users adopt more payments, lending and e-commerce features, is expected to structurally lift fee income growth and support double digit earnings expansion.
• Deepening financial inclusion through first-time digital lending and microfinance, including millions of Yape borrowers and Mibanco clients, is expanding Credicorp's addressable market into higher-yielding retail and SME segments, supporting sustained loan growth and a higher consolidated NIM.
• Cross-business synergies that leverage shared data, AI capabilities and common platforms across banking, insurance and asset management are driving better risk selection and operational automation, supporting a lower cost of risk and a declining efficiency ratio toward the 42 percent target and higher net margins.
• Favorable macro and commodity-driven investment cycles in Peru, Chile and Bolivia, supported by record terms of trade and stronger private investment, are underpinning demand for credit, transaction services and insurance, which is expected to support high single-digit revenue growth and ROE above 19 percent.
• Scaling noninterest income engines such as FX transactions, capital markets, wealth management, bancassurance and e-commerce through Yape is steadily increasing the share of recurring fee-based revenues, reducing earnings volatility and supporting long-term margin and ROE expansion.

Assumptions

This narrative explores a more optimistic perspective on Credicorp compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Credicorp's revenue will grow by 13.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 31.6% today to 30.4% in 3 years time.
• The bullish analysts expect earnings to reach PEN 9.2 billion (and earnings per share of PEN 115.52) by about December 2028, up from PEN 6.5 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as PEN7.8 billion.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 13.3x on those 2028 earnings, up from 10.9x today. This future PE is greater than the current PE for the US Banks industry at 11.5x.
• The bullish analysts expect the number of shares outstanding to decline by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.52%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent political volatility in Peru and across the Andean region, including recurring impeachments, election related uncertainty and policy instability, could dampen private investment and corporate borrowing. This could lead to slower loan growth and weaker revenue over the medium term.
• As Credicorp deliberately shifts its loan mix toward higher yielding retail, microfinance and unbanked or underbanked segments via BCP, Mibanco and Yape, the structurally higher credit risk in these portfolios could push the cost of risk back up from the current unusually low levels. This would pressure net margins and earnings if economic conditions soften.
• The long term strategy hinges on rapid digital monetization and innovation, with Yape, Tenpo and other platforms already driving double digit expense growth. If competitive pressures, slower user adoption of monetizable features or execution challenges delay the expected revenue ramp, operating costs could outpace income growth and compress net margins.
• Repeated pension fund withdrawals and the progressive erosion of Peru’s private pension system risk structurally shrinking assets under management at Prima and undermining the long term savings pool. This could reduce recurring fee income, weaken insurance and investment products tied to retirement and ultimately weigh on consolidated earnings.
• Credicorp’s growing exposure to commodity driven economies such as Peru, Chile and Bolivia, where current record terms of trade and mining cycles are supporting strong macro data, creates a secular vulnerability to a downturn in copper, lithium or gold prices. This could slow GDP and credit demand, reduce fee and transactional income and impair asset quality, thereby pressuring revenue and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Credicorp is $360.0, which represents up to two standard deviations above the consensus price target of $298.1. This valuation is based on what can be assumed as the expectations of Credicorp's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $360.0, and the most bearish reporting a price target of just $219.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be PEN30.2 billion, earnings will come to PEN9.2 billion, and it would be trading on a PE ratio of 13.3x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $263.16, the analyst price target of $360.0 is 26.9% 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.