In terms of valuation, David Vélez’s Nubank is trading at a nominally “expensive” value of ~6x sales (compared to other financial companies), but NU’s growth and margins more closely reflect a fintech startup, meaning NU’s share price is mostly justified and reasonable.
Demographic and digitalization trends in the region are strong, which should serve to reinforce the adoption and use of neobanks.
What do foreign investors see in Nu?
While some people still prefer to go to a physical bank, it is only recently that a digital-only approach has become viable.
The tailwinds toward digitalization are only improving, which should boost NU’s growth. Additionally, in the long term, Latam has higher fertility rates than most other geographies, which should avoid the demographic collapse concerns present in other developed markets.
The bank is a tough entrant into Brazil’s historically stagnant banking market. This gives the company a very different cost structure than traditional oligopolistic banks that have existed until now, such as Itaú.
A lower cost of serving customers, based on a digital-first strategy, means NU has been able to undercut its competitors on price and rates.
These lower rates, when combined with the premium digital experience, have resulted in an incredibly strong CX and therefore brand among the Brazilian population.
The bank can make much more money per unit of spending than almost anyone else. This approach has taken the large traditional banks by surprise and now more than 50% of Brazilian adults have an account. Nearly 60% of those adults consider NU their “main” bank.
Between the brand, cost structure and improved monetization, the company has a strong track record of success that management has recently been looking to replicate in other countries such as Mexico and Colombia.
“Therefore, with the stock price currently hovering around $12.50 per share, we see upside towards the $18-$20 range over the next twelve months, which would represent a 40%-60% upside.”said a foreign firm.
Read more: David Vélez, the richest man in Colombia: I liked mathematics.
