XP drops by 11%. market questions about the use of capital; The finance manager responds

XP stock opened lower and fell 11% in the early afternoon selling side The question about the rise in costs and the company’s need for capital in the second quarter announced yesterday.

XP showed a rebound in revenue in the quarter, but the increase in costs and expenses caught the market’s attention. Total expenses grew 25% year over year, accelerating from an increase of 21% in the first quarter and 19% in the fourth quarter of 21.

EBITDA margin stood at 29%, down from 31% in the fourth quarter of 21 and less than the 34% projected by JP Morgan — for the bank’s analysts, XP should now focus on profitability, with more cost discipline to support margins.

The profit in the first quarter was R$1 billion, which is a stable result in the annual comparison and an increase of 6% compared to the previous quarter. EBITDA decreased 2% to R$1.2 billion.

Retail revenue was a positive sign. It reached R$2.7 billion – up 15% in the quarter – as the company saw greater demand for fixed income products as well as better float rates and performance.

Today’s fall comes after the paper has gone through gathering Recent: 28% increase in 30 days. Even after that rally, the paper as of yesterday was down 18% for the year, with the stock trading at 13.3 times estimated earnings for next year.

“Definitely not that expensive,” Eduardo Rosman wrote on BTG.

Paper still suffers prominence for potential sales by Ita and Itaúsa (which hold about 20% of the capital) and a more intense debate about changing Business From “growth” to “value”.

“Our perception of XP becoming a capital-intensive business appears to be gaining traction,” the BTG team wrote. “When we look at the cash situation, it seems XP didn’t generate much cash in the first half.”

For Credit Suisse, the level of XPF (free cash flow) generation remained “not very bright” with FCF conversion to EBITDA just 49% in the first half.

XP needs to hold more capital to run its business; Either because it has to ‘acquire’ independent agents, or because it needs to use more cash to work with clients,” said one manager. “The reality is that if you generate less cash, the returns tend to fall. And if that happens, the multiplier that the company negotiates should be lower.”

Chief Financial Officer Bruno Constantinou told the Brazil Journal that the quarter was marked by related events that took a lot of the company’s money.

XP has spent about R$250 million on stock buybacks – a streak that should continue to show in results, as the approved program is worth up to R$1 billion.

In addition, the last payment, amounting to R$180 million, to a maturity bond was made in May; He paid a semi-annual interest of 100 million Brazilian riyals on the bond.

Between capital expenditures and mergers and acquisitions (purchasing stakes in other companies), it spent more than R$100 million. And another R$200 million that was in closed long-term contracts with new offices of independent agents — in the last quarter, XP didn’t have that kind of expense.

According to Bruno, XP has already concluded most of the contracts of the kind it needs, and don’t expect new related volumes; The company continues to evaluate deals on a case-by-case basis.

According to the CFO, the increase in costs and expenses has to do with the future and sustainable growth of the business. “We made the decision to grow some of the business organically rather than doing mergers and acquisitions. That means we have a higher initial cost, for example with people and systems, and the revenue, which will pay the cost of the investment, will come later.

For example, in the international investment account and on the digital asset exchange – two new companies were announced recently – investments were in the range of R$500 million, however, according to the CFO, XP maintained a net-rate margin above the top of the long-term guidance (30%).

“We are still a ‘light asset,’ but the business platform is suffering the most in a bear market. Regardless, XP has delivered record revenue thanks to its ability to diversify and create new business,” Bruno said.

The CFO also said that among the new companies, credit card consumes a little more capital, but personal credit consumes less, because it is guaranteed.

Anna Paula Ragazzi

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