Inter shares and BDRs (INBR31) rose after the balance sheet;  CEO strengthens conservative bank's credit position

Inter shares and BDRs (INBR31) rose after the balance sheet; CEO strengthens conservative bank’s credit position

Inter & CO’s second quarter numbers resonated well with investors. Leaves hold, the owner of Banco Inter, closed on a solid rise on the New York Stock Exchange, in addition to their B3 trading certificates. INTR stock rose 9.71% on the US Nasdaq Stock Exchange, which includes technology companies. INBR31 BDRs rose 12.20% to R$19.40.

On the balance sheet released last night, Inter & CO presented net income of R$15.5 million in the second quarter, reversing a loss of R$30.4 million in the same period a year earlier.

In a conference call about the results, company executives spoke of their more conservative stance at the time. Inter credit assets in the second quarter decreased by 1% compared to last year, to R$4.7 billion. “As a strategy, we decided to slow the credit underwriting and monitor the performance of the portfolio and the macro environment,” said Alexandre Riccio de Oliveira, Vice President of Financial Operations at Inter.

“We hope to accelerate again when we see the right conditions for that,” the executive said. Caution was reflected in Inter’s loan portfolio, which amounted to R$19.5 billion. Compared to the previous year, there was a growth of 56%. However, compared to the first three this year, the expansion was 7%. “Growth has been intentionally more modest because we have gotten wiser with our subscription models,” explained Helena Lopez Caldera, Inter’s chief financial officer.

Bad debts grew, but the worst was behind it, says CEO

Joao Vitor Menin, CEO of Inter & CO, says he believes the worst is behind it in terms of defaults. “We have a very secured wallet [com garantias], which is good for business. The exposed portion of the Inter wallet is primarily the credit card segment, as the bank does not handle personal loans.

Inter & CO’s 90-day overdue rate ended the second quarter at 3.9% (compared to 3.5% in the first), driven by an increase in credit card delays to 7.9%. “If something really bad happens, which I don’t think is likely, we might see some deterioration. But if things improve in the macroeconomic scenario, we might get better faster than we thought,” Minin said.

The executive understands that the credit card is important to customer engagement and retention. But he says the moment requires more caution. “We are a broken bank, we earn a lot Market Share Now we need to slow down a bit.” “When we realize that the market is in better shape, we will be able to grow in credit cards at a faster pace.”

Participation decreased despite the increased customer base

Inter recorded a 51.7% year-on-year growth in the number of active customers to 10.7 million. However, the representation of these clients in the bank’s overall base has decreased between periods. However, Joao Vitor Menen says this should not be a trend.

“We’re not at all interested in getting involved. We don’t think there’s a downward trend for engagement. Half of our customers joined 12 months ago, so the pace of growth we’ve seen in that period has been fantastic. It takes time to engage customers – they need to have a card, they should have credit limit.

The CEO explains that when the base was growing at a slower pace, in 2020, the activation rate was higher, exceeding 60%. “Of course, giving higher credit limits helps with activation and retention,” he explained.

In the second quarter, the average revenue per active customer was R$32. But Inter expects the figure to rise to around R$50 in the short and medium term. “We think R$50 is the bottom line that we would expect, if funding costs remain stable. We have several products that have been launched recently and are still in their maturity stage. In addition, when we compare ARPAC with the big banks, we see that there is room for significant growth, said Santiago Steele, Director of Strategy and Investor Relations.

Analysts’ opinion

For Pedro Leduc, an analyst at Itaú BBA, the company’s second-quarter earnings are still not material, but the results show that the worst may be over.

“Compared to Nubank, which also reported this evening, Inter reported lower loan backlog and revenue growth, but also less pressure on credit quality,” says Leduc’s analysis.

BBA remains positive for INTR, with Outperform The target price is $8 by the end of 2022.

“Compared to Nubank, Inter reported lower loan portfolio and revenue growth, but also less pressure on credit quality,” the House analysis said.

For UBS BB, the result showed operations with mixed trends, with a “decent” expansion of the revenue line (especially Inter Shop and credit cards), but deteriorating asset quality.

Macro Scenario (with high inflation and modest GDP expansion) may be delayed
ROAE expansion [retorno sobre capital] From Inter”, the bank’s analysts wrote. On the other hand, UBS assesses that INTR is trading at a discount, with less chance of the negative side. The house has a buy recommendation for the sheet and the target price is $6.

In the Bradesco BBI valuation, the second-quarter balance sheet continued to show a challenging credit underwriting environment. Inter should continue to benefit from recent price adjustments and marginsHowever, it appears that the market has already incorporated this movement into the stock price, which leaves little room for optimism in the short term, from the analysis team’s point of view.

For BBI, the provisions also refer to a challenging scenario, in which credit card delinquency grows by 130 basis points.

The house is rated Outperform for INTR and target price is $10.

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