Aydin

New position. $INTR, a Brazilian bank. I feel good about this one. This one looks like a fat pitch. How does a bank make money? They borrow money from customers (deposits), pay some yield, then loan that money out at a higher yield. The difference (plus whatever other fees they charge) minus expenses is their profit. This concept of yield received minus yield paid out is called net interest margin. Their cushion is their own money (injected from owners, investors, profits, etc, not deposits), aka their equity. This concept of borrowing money with some capital base (your equity) is inherently the same thing as leverage. How to value a bank? Return on equity. Aka for every dollar an owner/investor puts in, what is their total return? It needs to be higher than the opportunity cost, aka the cost of equity. So simply, ROE > cost of equity Must be true. Whats important is not just that a bank is growing, but that the money actually put in is growing at a faster rate than it could be growing elsewhere. Example, if a bank is growing 10% YoY, that’s great, but if interest rates are 13%, that means I could be getting paid 13% in a much safer place (the government). This is exactly the case in Brazil. When ROE = cost of equity, valuing at book is fair. But if ROE is rapidly growing, is it still fair? $INTR traded far above book for a long time. Now it’s about book value. But its ROE has grown massively over time. In about 6 years it’s gone from near 0% ROE to 16%. Soon, it will grow past cost of equity. Their stated goal is 25-30% long term. If they pull it off, this thing will be worth a lot more than today. Sentiment is poor right now allowing you to scoop such a high potential opportunity at this price.