Inter & Co, Inc. INTR

Key data

The business

Inter & Co is a Brazilian bank that lives entirely on a phone. One app holds a checking account, a debit and credit card, savings and investments, insurance, and a shopping marketplace where buying through the app pays cashback. It lends against homes, payrolls, small businesses, and FGTS severance balances, and funds most of that lending with demand deposits that cost almost nothing. The money is made two ways: the spread between what borrowers pay and what deposits cost, and fees from cards, investing, and the marketplace. The engine is engagement, sign a client for a free account, then sell them a card, a loan, an investment, and lift what each one earns. The moat is that cheap deposit base feeding an all-in-one app whose switching cost rises with every product a client adds.

The numbers

The five-year record is a loss-maker that flipped, hard. Revenue quadrupled from 2020 to 2024 while the company crossed from red to R$973M of profit, and diluted earnings nearly tripled in the last year shown, R$0.75 to R$2.07. The cadence since has held: earnings per share of $0.14, $0.16, $0.17, and $0.19 across the last four quarters, each above the one before, the June quarter a touch above the analyst mark. Return on equity runs 15.2%, low for what management targets and climbing.

At 8.3x trailing earnings and 1.2x book, a bank earning 15% on equity and lifting that number is priced as though the earnings will not last. The cheapness is real only if credit holds, and it is not holding cleanly. Cost of risk rose every quarter to 5.9%, early delinquency climbed from 3.8% to 4.5%, and coverage, the cushion of reserves held against bad loans, slipped from 143% to 134%. All three point the same way. Management pins it on private payroll, its new paycheck-linked loan: when a borrower changes jobs the payroll link breaks and payments stop until the worker is relinked. A quarter ago the hope was that this was a passing, one-time drag; it climbed again, so it was not. What this memo believes the market misreads is direction, not level, the losses sit in one immature product Inter can throttle, not spreading across the whole book. The print that settles it is coverage against cost of risk over the next two quarters.

Management

Inter is founder-controlled by João Vitor Menin, and the record is one of funding growth from its own capital rather than issuing stock into every land grab. Core equity sits at 11.5% of risk-weighted assets, down from 12.2% in March as lending grew and a dividend went up to the holding company, still comfortably above the regulatory floor, and the bank has reached the point where it funds its own growth. There are no open-market insider buys or sells on record in the past year, though the foreign-private-issuer regime hides most of what officers do with their shares, so read the absence as no signal rather than a good one. The louder signal is Squadra Investimentos, a respected São Paulo fund long skeptical of Inter, disclosing in July that it had cut its stake to about 31.9M shares. A known doubter selling proves nothing on its own, but it is not nothing either. The earnings record is steadier: earnings came in at or above the analyst mark in the last two quarters.

How it fails or surprises you

Private payroll turns from immature to simply bad. Cost of risk is 5.9% and coverage has fallen to 134%. If the delinquency is real credit rather than the relinking operational story management tells, rising provisions swallow the net-interest growth. Watch coverage below 130% while cost of risk clears 6% over the next two quarters; that pair breaks the read.

The re-rating (right tail). Return on equity is 15.2% and pointed at management's high-twenties target as each client buys more and cheap deposits scale. At 1.2x book the market pays nothing for that climb. If ROE clears 20% with credit stable, the multiple has room to run well before it looks rich. The print is the quarterly ROE line.

Brazil itself. The stock is a dollar claim on real-denominated earnings, so a sharp move in Brazilian rates or the currency hits both the loan book and the ADR at once. High local rates fatten deposit spreads but squeeze the same borrowers now falling behind. Watch delinquency formation against the Selic path.

Closing thoughts

This is a name the market has half-priced. Eight times earnings and 1.2x book already carry real credit fear, so the edge is not that the fear is fake, it is that the fear is aimed at one throttle-able product rather than the whole bank, and a specific print resolves it, coverage and cost of risk over the next two quarters. If coverage steadies near 134% and cost of risk flattens, the cheapness was a gift; if coverage keeps sliding and losses spread past payroll, the multiple was right. The upside tail looks the fatter one, because at this price a franchise earning 15% on equity with core capital at 11.5% survives a credit scare a more expensive stock would not, and the re-rating from a rising ROE is worth more than the drawdown if payroll keeps leaking. Call the odds judgment, not arithmetic.

The bet is still that Inter keeps signing up Brazilians and gets each one to bank, borrow, and shop inside one app, earning a sliver on everything they do, and they pay Inter back. What breaks it is the paycheck loan going sour faster than Inter can fix the plumbing behind it. The one pair to watch is cost of risk against coverage: while coverage holds and cost of risk stops rising, the bet is intact; when both cross the wrong way at once, it is not.