Nu Holdings Ltd., the Brazilian digital lender that has Warren Buffett’s Berkshire Hathaway Inc. among its backers, saw profits climb in the fourth quarter even as credit quality deteriorates in its largest market.
(Bloomberg) — Nu Holdings Ltd., the Brazilian digital lender that has Warren Buffett’s Berkshire Hathaway Inc. among its backers, saw profits climb in the fourth quarter even as credit quality deteriorates in its largest market.
Adjusted net income surged 81% from a quarter earlier to about $114 million for the three-month period ended on Dec. 31, topping the average estimate of $91.7 million in a survey of five analysts by Bloomberg. Nubank, as it’s known, managed to keep bad loans under control as it calibrates credit policy, and was also helped by a seasonal improvement, according to Chief Executive Officer and co-founder David Velez.
The beat prompted Itau BBA to ditch its sell-equivalent rating that it held since weeks after the company’s initial public offering in December 2021. “Nubank has shown agile portfolio repricing and more funding cost benefits than we expected,” analyst Pedro Leduc wrote in a note. That’s “likely here to stay, and is a key pillar for the bank to scale up loans to lower-risk products and clients,” he said, upgrading the stock to market perform and boosting the price target to $5.50 from $3.10.
The shares rose the most intraday since mid-November in New York Wednesday, climbing as much as 8.8% to $5.44.
Early delinquency indicators — loans overdue 15 to 90 days — fell to 3.7% in December from 4.2% in September, while the percentage of loans more than 90 days late rose to 5.2% from 4.7% three months earlier, better than what banks including Bradesco BBI and Goldman Sachs anticipated.
After hitting the brakes on personal loans between April and September, Nubank started to expand its portfolio in the fourth quarter.
“We still provide credit to only a small portion of our total clients, so we’re able to grow our portfolio by cherry-picking, looking for good clients,” Velez said in an interview Tuesday. “Visibility was low in previous quarters, but we’re now gaining conviction” to grow.
Brazil’s largest publicly-traded banks set aside 9.3 billion reais ($1.8 billion) in their fourth quarter results to account for potential losses tied to the collapse of retailer Americanas SA, which added to worries about weak economic growth and high interest rates.
Americanas Implosion Prompts Banks to Set Aside $1.8 Billion
Nubank posted a net income of $58 million, which excludes the one-off impact of the termination of Velez’s stock compensation program. Last November, the Colombian billionaire announced he was giving up his stock-based incentive program relative to 2021 and declined any new stock compensation tied to 2022 and 2023 performance.
Other key points:
- Nubank’s revenue jumped to a record $1.45 billion, above the expected $1.28 billion, with clients climbing to 74.6 million
- The firm launched its payroll-backed loan product in Brazil and plans on making it available to all clients in the nation by the end of June
- While Mexico currently accounts for only 4% of total clients, Velez says investors are underestimating future growth in the country, where per capita income is higher than in Brazil
- The average revenue per active client, or ARPAC, rose to $8.2 in the fourth quarter from about $7.9 quarter earlier
- Adjusted net income represents a sharp increase from the $3.2 million profit in the same period a year earlier, when Nubank posted its first results following the 2021 IPO
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