Nubank Analysts to Weigh Premium to Rivals After Blockbuster IPO

(Bloomberg) -- Sell-side analysts are set to initiate coverage of Latin America's most valuable financial company, Nu Holdings Ltd., next week, weighing its growth prospects against relatively rich valuations.

Lead underwriters Morgan Stanley, Goldman Sachs Group Inc. and Citigroup Inc. can issue reports starting Monday, 25 days after the company's initial public offering. HSBC, UBS, KeyBanc, Nau Securities and Susquehanna were also among the sales team.

Nubank, which counts Warren Buffett's Berkshire Hathaway Inc. among its backers, raised over $2.5 billion in the fifth-largest U.S. IPO of 2021, blowing past big Brazilian banks like Itau Unibanco Holding SA and Banco Bradesco SA in market value. Since the December debut, the stock is up 4.4% to $9.40, giving the firm a market capitalization of about $43 billion.

The world's biggest standalone digital bank, Nubank boasted 48.1 million customers across Brazil, Mexico and Colombia as of September, betting on easy-to-use financial products with lower fees. The company could get to 100 million to 150 million customers in five years and be worth as much as $300 billion, according to Paulo Passoni, the managing director for the Latin America Fund of SoftBank Group Corp., one of the IPO's cornerstone investors.

Banks that served as IPO underwriters tend to be the most bullish on a new stock. By contrast, Banco BTG Pactual SA analysts led by Eduardo Rosman wrote on Dec. 16 that a combination of an “extremely high valuation” and a bad macro scenario has turned the stock into “a very risky bet.” They have a neutral rating on the stock and price target of $10.

Brazil, where Nubank gets most of its revenues, may even slip into recession this year as the central bank lifts rates in order to tame inflation.

At the same time, Nubank is expensive compared with other Brazilian banks and non-bank financials, even when its lower customer acquisition costs, large base of clients and growing average revenue per user are taken into account, BTG said.

Earlier this month, Bank of America calculated that each Nubank client was valued at $900 based on the IPO price, compared to an average of $300 per client for other publicly-traded Brazilian neobanks like Banco Inter SA and Banco Pan SA.