2023-12-05 16:37:36
Creating a kind of long & short for the fall in the Selic, JP Morgan raised its recommendation for XP from ‘neutral’ to ‘buy’ at the same time as it downgraded B3 to ‘neutral’.
XP shares rise more than 5% in the early followingnoon; B3 falls 1%.
Analyst Yuri Fernandes said that despite both companies benefiting from the drop in interest rates, XP’s revenue has more leverage to capture the market’s recovery.
For him, XP’s take rate will benefit from the change in investors’ asset mix — who, with the fall in interest rates, tend to invest more in shares and alternative products and less in fixed income.
To give you an idea, the take rate in stock operations is two to three times higher than that of fixed income.
JP Morgan also said that it sees greater demand for price cuts at B3 and that the Exchange has a greater regulatory risk, as it is more exposed to interest on equity (JCP) — which might be extinguished under the tax reform.
At B3, interest on equity — which reduces the taxable value of the result — accounts for around 10% of the bottom line; on XP, for practically zero.
Yuri also noted that B3 currently trades at a multiple premium of 20% in relation to XP — which rises to 30% if the JCP ends. In JP’s accounts, XP trades at 12.5x its estimated profit for next year, and B3, at 15x (or 16x, ex-JCP).
This B3 premium is much higher than the historical average: in recent years, the company traded at an average premium of 5% over XP.
“It is true that B3’s ROE levels are historically higher, and even considering a greater capital distribution from XP we see B3 with a higher dividend yield. But we think XP’s ROE will gain momentum going forward,” the analyst wrote.
“We see XP’s ROE, excluding excess capital, at close to 30%, and the company appears committed to returning excess capital to shareholders through dividends or buybacks.”
Despite the XP upgrade, JP Morgan said it still sees a challenging short-term scenario, given that the tailwinds of the Selic fall have not yet materialized.
The bank noted that XP will have a strong basis for comparison in the fourth quarter, due to the good DCM activity in the same quarter last year. In the bank’s estimates, this should lead to a 3% drop in XP’s profit in the fourth quarter, in a sequential comparison. “But we expect profits to accelerate in 2024, with 27% year-on-year growth.”
Yuri also said he had a positive impression from his recent meeting with B3’s senior management, who said he was focused on keeping costs under control. “However, on the revenue side we saw October’s daily volume of R$23 billion still weak and some recovery in November.”
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