I hold Nu Holdings $NU in my portfolio, so I was waiting for this report more than for others. The company published its second-quarter results on Thursday after market close, and I have to say I'm happy with them. But I'd like to put it into the context of the last nine months, because one good quarter doesn't settle anything yet.
Net income reached $1.06 billion, for the first time in the company's thirteen-year history above the billion mark. Year over year, on a currency-neutral basis, that's growth of 49%, quarter over quarter 17%. Gross revenue climbed to $5.9 billion and gross profit to $2.4 billion. Return on equity 33%, cost-to-income ratio 19.5%. The bank has 139 million clients, adding four million in the quarter.
But the most important number in the whole report is different. Risk-adjusted net interest margin jumped to 12.4% from 9.5% in the first quarter. Nearly three percentage points in a single quarter, that's a lot for a bank of this size.
To be clear why the market took it this way. In May the company reported the first quarter, where cost of risk jumped, risk-adjusted margin fell to 9.5%, and early delinquency 15 to 90 days worsened by 89 basis points to 5%. Then in June the long-time CFO Guilherme Lago handed over to Rob Livingston and moved to an advisory role, after which Bank of America and Susquehanna downgraded the stock citing credit risks in Brazil and competitive pressure. By early June the stock had written off roughly 30% from the start of the year and fell to a yearly low of $11.20.
That's exactly why the premarket reaction is so strong. The stock traded around $15 this morning against Thursday's closing price of $13.93. But even so, it's still about a fifth below the yearly high of $18.98. In my view, this isn't new enthusiasm yet. The stock is just taking back part of what it lost in the spring due to concerns about credit costs.
My take. The numbers are excellent, but I wouldn't treat the margin jump as a new norm. The company itself didn't call 12.4% a floor; it talked about staying in a similar range and about it being sustainable. Cost of risk fell quarter over quarter to $1.7 billion, and about 5% of that number was affected by the government debt-relief program Desenrola, according to the company. That's one-time help, not a structural change. Moreover, the share of loans overdue by more than 90 days rose from 6.5% in the first quarter to 6.9%. Management called it seasonality, and early delinquency 15 to 90 days did improve to 4.8%, but I have a feeling this will be the number everyone will be watching in November.
What I like about the company more than one quarter is Mexico. Nubank got a full banking license there, it already has 16 million clients and average revenue per active customer of $12.30. According to the company, at this stage of development that's more than Brazil had back then.
What do you think of the results? Do you hold the company in your portfolio?
