XP: Strong Growth Potential (NASDAQ:XP)

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Hände bei der Auswahl einer Kreditkarte

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XP, Inc. (NASDAQ:XP) is the biggest unbiased dealer in Brazil. The firm presents a complete monetary service platform to its prospects. XP desires to increase additional into the banking enterprise and appeal to extra prospects from conventional banks by offering an entire funding ecosystem. Currently, the vast majority of Brazil’s wealth is held inside the 5 largest banks. I current my funding thesis as follows:

  • XP’s new enterprise space bank cards allow the corporate to additional increase into the standard banking enterprise.
  • I count on XP to develop additional by gaining market shares from the standard banking sector.
  • My EPS multiplier technique reveals that the corporate is at the moment undervalued, calculating a good worth of $55.32 for XP, which leads to a security margin of 45.1%.
  • I feel XP shares are a purchase, and consider that XP has an excellent danger/reward ratio. The firm was capable of construct an financial moat, and so they nonetheless have large development potential.

Industry Overview

In Brazil, the 5 largest banks divide the market share amongst themselves. The chart under reveals that a lot of the income comes from the next Brazilian banks: Itaú Unibanco (NYSE:ITUB), Bradesco (BBD), Banco do Brasil (OTCPK:OTCPK:BDORY), Caixa Econômica Federal, and Banco Santander Brasil (NYSE:BSBR). According to Reuters, these banks maintain 82% of all property in Brazil. Comparatively, the 5 largest banks within the U.S. maintain simply 43% of all property within the nation. These percentages present the intense focus of the Brazilian banking sector. Through its growth technique, XP is instantly increasing into the enterprise of conventional banks.

Revenue in BRL Billion (TTM) of the Largest Brazilian Banks Compared to XP:

Revenue in BRL billion (TTM) of the largest Brazilian banks compared to XP

Source: Company’s Annual Reports

Business Model of XP

The enterprise sectors of XP will be divided into the next areas: retail, institutional, and issuer providers. 79% of XP’s income in 4Q21 got here from the retail sector, with a rising contribution coming from the brand new enterprise areas of pension funds, bank cards, credit and insurance coverage. In the retail sector, the corporate operates beneath three completely different manufacturers: XP Investimentos, Rico, and Clear. The institutional division represented 9% of XP’s revenues in 4Q21, whereas the issuer providers division represented 8% of the income. The remaining 4% belongs to different sectors.

Strong Company Results in Fiscal Year 2021

In fiscal 12 months 2021, XP generated revenues of BRL 12.799 billion. These outcomes characterize a rise in development of 47% in comparison with fiscal 12 months 2020, the place XP generated a income of BRL 8.711 billion. The income of BRL 3.447 billion in 4T21 elevated by 34% in comparison with BRL 2.570 billion in 4T20. This income enhance was primarily pushed by the expansion of XP’s largest (by way of income) enterprise unit retail. The enterprise unit elevated from BRL 6.271 billion in FY20 to BRL 9.864 in FY21, leading to a rise of 57%.

This rising income demonstrates the power of the XP enterprise mannequin, which goals to disrupt the monetary market in Brazil by offering a whole ecosystem. Additionally, it’s an indicator of the rising demand for the XP funding platform and the corporate’s providers. Given XP’s entrance into the banking enterprise sector by establishing new enterprise areas together with its financial moat (which they constructed primarily by way of the creation of an ecosystem), I count on XP to proceed to see robust development within the coming years.

Total Gross Revenue in BRL million

Source: XP Reports Fourth Quarter 2021 Financial Results

The firm’s adjusted EBITDA reached BRL 4.8 billion on an annual foundation in 2021, which is a 66% enhance relative to 2020. The adjusted EBITDA margin grows from 35.8% in FY20 to 40.1% in FY21. In my opinion, these numbers will be seen – amongst different causes – on account of XP’s stable market place and the robust model picture it has in-built Brazil.

XP elevated the variety of its prospects from 2.777 million in 4Q20 to three.416 million in 4Q21, scaling up its development by 23%. Due to XP’s new established enterprise areas and its steadily rising community of unbiased monetary advisors (IFA), I assume that XP will have the ability to proceed to steadily enhance its buyer base within the coming years. In 4Q21 XP’s community of IFA’s reached over 10,000 all through Brazil, rising the variety of new IFAs in 2021 in comparison with 2020 by 18%.

Active Clients (in Thousands):

Active Clients (in thousands)

Source: XP Reports Fourth Quarter 2021 Financial Results

XP’s Competitive Advantages

XP seeks to combine additional particular person shoppers, institutional shoppers, firms, and unbiased brokerage companies on its funding platform. In this fashion, the corporate creates a community impact, which can assist them to extend their income.

XP has managed to construct a powerful model in Brazil. According to Interbrand, XP is at the moment the eleventh most dear model in Brazil. The firm has constructed an financial moat to guard itself in opposition to its rivals by establishing an entire ecosystem and the creation of its model picture.

In January 2022, XP introduced the acquisition of as much as 100% of funding platform Banco Modal S.A. According to Reuters, Banco Modal S.A. brings round 500,000 lively prospects and extra banking sector know-how to XP. Besides XP’s new enterprise areas, this strategic takeover is an extra step by them to increase into the standard banking enterprise.

Growth Opportunities Through XP’s New Business Area Credit Cards

The new enterprise areas of XP will be divided into the next areas: pension funds, bank cards, credit, and insurance coverage. The figures under present the large development that XP’s new enterprise areas have supplied.

XP’s New Business Metrics:


Source: XP Reports 4Q21 Financial Results

XP’s Revenues from the New Business Areas

In 4Q21, the brand new enterprise areas generated income of BRL 224 million. This quantity demonstrates a rise of 387% in comparison with the 4Q20 income of BRL 46 million.

In 4Q21, the brand new enterprise areas already accounted for six.5% of the corporate’s whole income, whereas it was just one.8% in 4Q20. This is yet one more indicator that the brand new enterprise areas are more and more contributing to the corporate’s success.

Revenues from New Business Areas (in BRL Million):

Revenues from new business areas (in BRL million)

Source: XP 4Q21 Earnings Presentation

New Business Area Credit Cards

From my perspective, the enterprise space of bank cards presents the strongest development views out of the 4 new enterprise models, and are additionally essentially the most lately based at XP.

XP launched its bank card in cooperation with Visa (V) in 2021. In 4Q21, XP bank cards generated BRL 4.4 billion in Total Purchased Value (TPV). This corresponds to a rise of 33% in comparison with 3Q21. In fiscal 12 months 2021, XP’s first 12 months as a bank card supplier, the TPV was BRL 10.3 billion. In December 2021, XP lowered the brink for bank card eligibility to BRL 5,000 (from BRL 50,000). I count on that this step will contribute to additional income development for the corporate, as it would be certain that extra prospects from decrease earnings households will use the bank card.

I count on bank cards to be one among XP’s income development drivers within the coming years. Compared to banks like Banco Bradesco, which solely provide bank cards with annual charges, or Banco do Brasil, who provide most of their bank cards with annual charges, XP presents its prospects the bank card freed from charges. Additionally, XP bank cards provide its shoppers an “investback” (as a substitute of a conventional cashback) perform that permits for a purchase order share return. This can be utilized to take a position inside the XP funding platform. This instance reveals how XP makes use of its bank card enterprise to increase additional into the standard banking enterprise to realize extra income by way of its funding platform.

New Business Areas Aim to Grow as much as BRL 10 Billion by 2025

XP’s gross income from its new enterprise areas elevated from BRL 194 million in FY20 to BRL 582 million in FY21, thus demonstrating a income enhance of 200%.

At the XP Investor Day in December 2021, it was introduced that the brand new enterprise areas that reached a income of BRL 582 million in 2021, are anticipated to develop to BRL 10 billion by 2025. According to the corporate, these areas ought to then account for 25% of the corporate’s income by 2025.


In phrases of valuation, I’ve used the EPS Multiplier Method to find out the intrinsic worth of XP. The technique calculates a good worth of $55.32 for the corporate. At the present share worth, this leads to a margin of security of 45.1%. Based on this calculation, the corporate is at the moment undervalued.

In the following sections, I’ll clarify the assumptions of my calculation:

The Seeking Alpha EPS Diluted Growth (FWD) fee of XP is 28.68%. I’ve determined to make extra conservative assumptions and subsequently assume an EPS development fee of 20% for XP for the following 10 years. Next, I assume a median annual development fee of three% for the next 10 years. I’ve used XP’s present low cost fee (WACC) of 8.32% to calculate a good worth.

My calculations are primarily based on the next info as introduced under:

Company Ticker




Discount Rate


Growth Rate first 10 years


Growth Rate for subsequent 10 years


Current Share Price


P/E Ratio


Based on the above assumption, I calculated the next outcomes:

Intrinsic Value


Current Market Value


Margin of Safety






Calculation of XP’s Intrinsic Value With the EPS Multiplier Method:

Calculation of XP

Source: The Author

The graph under signifies that XP’s P/E ratio (TTM) is at the moment at one among its lowest ranges since XP’s IPO in 2019. Since XP’s P/E Ratio is at the moment decrease than the Average P/E Ratio of the final 3 years, we see one other indicator that means the corporate is at the moment undervalued.


Source: Seeking Alpha


In my opinion, the rising competitors from digital banks and fintech corporations is likely one of the main threats to XP. The digital financial institution Nubank (NYSE:NU), backed by Warren Buffett, has greater than 40 million prospects and likewise presents a zero-fee bank card, instantly competing with XP’s personal bank card.

One of XP’s major rivals within the brokerage enterprise is BTG Pactual, which has been rising repeatedly in recent times and is investing strongly in its digital retail financial institution. In 2021, BTG Pactual generated revenues of BRL 13.9 billion, up 49% in comparison with 2020, making the corporate a powerful and quickly rising competitor.

As conventional Brazilian banks reminiscent of Banco Itaú, Bradesco, and Banco Santander Brasil proceed to increase their digital choices and scale back buying and selling charges, XP competes instantly with them as nicely. Given XP’s robust aggressive benefit and its newly created enterprise areas, I consider the corporate will stand out in opposition to its rivals over the long run.

However, I see the forex as a further danger for traders outdoors of Brazil. A possible depreciation of the Brazilian actual represents a danger for the investor. In explicit, continued elevated inflation in Brazil might trigger the true to depreciate in opposition to the greenback sooner or later. According to the Brazilian Institute of Geography and Statistics (IBGE), the inflation index of the nation was 10.06% in 2021. This was the best inflation fee in Brazil since 2015, when it was at 10.67%, in accordance with the IBGE.

The Bottom Line

According to the EPS Multiplier Method I’ve used, XP is at the moment undervalued. The firm’s truthful worth is $55.32, representing a margin of security of 45.1%.

With XP’s new enterprise areas of pension funds, bank cards, credit and insurance coverage, the corporate now presents a complete funding ecosystem and has glorious cross-selling potential. I count on that the brand new enterprise space of bank cards will contribute considerably to the corporate’s development within the upcoming years because of the exemption from annual charges. I additionally consider that XP will achieve market share of the standard banking sector.

I see XP as a long-term funding and I’ve a long-term place in XP. In my opinion, XP has an excellent danger/reward ratio. XP already enjoys a powerful place inside the Brazilian market; the corporate was capable of construct an financial moat resulting from its robust model and its ecosystem. At the identical time, they nonetheless have large development potential. All of those elements makes XP a purchase for me.

However, I like to recommend that your XP funding doesn’t exceed 3% of your whole funding portfolio because of the dangers talked about above.

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