Brazil Broker XP’s Assets Rise 13% Amid Market Volatility

Brazil’s XP Inc. (XP) reported a preliminary 13% increase in assets under custody (AUC) this quarter as the market volatility during the coronavirus pandemic attracted more client interest.

Nasdaq-listed XP said that total AUC amounted to R$412 billion as of May 31, up 13% from the end of the first quarter as its client base rose to 2.2 million. AUC is a measure of the total value of all financial assets which a custodian manages on behalf of its clients. Monthly net inflows increased 21% from R$6.9 billion in April to R$8.3 billion in May.

The digital retail broker also reported that between April and May, daily average trades reached 2.6 million, which is 127% more than the average in the fourth quarter.

“Despite ongoing uncertainty around COVID-19, XP’s long-term growth prospects remain strong, as we continue to leverage sustainable competitive advantages including a strong balance sheet,” said XP’s CEO Guilherme Benchimol. “Thus far in the second quarter, we are increasingly capitalizing on new opportunities to expand banking, digital content, and product and distribution capabilities both organically and through complementary M&A activity to diversify and enhance growth over time.”

Benchimol added that trading volumes continue to accelerate, as interest rates in Brazil remain at its lowest level ever, combined with an under penetrated stock market, where about only 1% of individuals trade stocks directly in Brazil.

Shares in XP have almost tripled since reaching a low in March. The stock surged 6.4% to $49.43 in U.S. trading on Tuesday.

Meanwhile, JPMorgan analyst Domingos Falavina this month cut the broker’s rating to Hold from Buy and lowered the price target to $28 (43% downside potential) from $33, citing valuation for the downgrade with the stock up 93% in local currency since its lows.

Falavina’s Hold rating is in line with the Hold analyst consensus for the stock. The $28.40 average price target implies 43% downside potential in the shares in the coming 12 months. (See XP stock analysis on TipRanks).

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