Head of Equity Strategy
Summary: Nubank is set to start trading today on NYSE after closing one of the largest IPOs this year raising $2.6bn. Nubank is a digital first and Brazil's fastest growing bank expected to grow net revenue by 100% in 2021 and backed by Berkshire Hathaway, and will be seen as a major test of the fintech business model and investor risk appetite for this type of businesses. We also take a look at the Belgian-based Umicore which is an unique company set to gain from the green transformation and especially the adoption of electric vehicles. The company has just signed a major JV with Volkswagen.
The most valuable bank in Latin America
Nubank is a Brazilian-based digital first bank with 40 million accounts and net revenue growth of almost 100% expected in 2021. The bank lists Berkshire Hathaway, Sequoia Capital and Tencent as its shareholders, and is raising $2.6bn in its IPO after reducing its valuation by 20% last week a demand was weaker than estimated. The shares were priced yesterday at $9 and will start trading today on NYSE with the Saxo ticker code NU:xnys.
The bank is still not profitable but will still get a market value close to $42bn making Nubank the most valuable publicly listed bank in Latin America ahead of Itau Unibanco. This is a major milestone for the fintech industry and if the IPO turns out to be well-priced and Nubank delivers on expectations in the coming years then it will pave the way for many more fintech companies going public. The overall industry is still lacking to become profitable on a broad scale and Nubank will be the first test. What is interesting about Nubank is that it is rare to see a bank with revenue of $1.04bn in the last 12 months going so fast as investors are used to look at banks being low growth. The deal also highlights that Berkshire Hathaway is slowly changing its behaviour as it was also part of the Snowflake IPO (pure cloud infrastructure play) showing that the investment company famous for not investing in digital technology companies is increasing exposure in these newer technologies.
Umicore signs long-term supplier contract with VW
The Belgian company Umicore is likely unknown to most but with a market value of €10bn and a very green transformation oriented business strategy, it is a company investors will get used to hear about in the future. Yesterday, Umicore shares were down 9% because the company downgraded its outlook for its battery materials unit, but at the same time it announced a joint-venture (JV) with Volkswagen on supply of cathode materials to Volkswagen’s battery production. The JV expects to ramp up production from an initial output of 20 GWh to 160 GWh by the end of the decade, which is equivalent to power 2.2mn electric vehicles. Volkswagen has planned to build six battery factories in Europe to control the supply chain of the most key component of electric vehicles as the German carmaker drastically ramps up EV production. Back in October Umicore signed Lithium supply deals with Ganfeng Lithium, one of China’s largest producers, and Vulcan Energy Resources from Australia.
With the JV, Umicore is positioning itself as gaining a lot growth from adoption of electric vehicles which is expected to deliver very growth rates this decade. Besides its battery materials unit, it also has business units within emission control for traditional cars and materials recycling. Umicore is well positioned to grow with the green transformation and for a better understanding of Umicore’s business the June 2021 investor presentation gives a good overview. In the short-term the business is facing headwinds from lower production and new car registrations across key markets in North America, Europe, and China. Like our Green Transformation basket, Umicore is up 4% following a strong start to the year up 55% by August as the company had the right green profile, but green transformation has suffered lately in terms of sentiment as many green companies have difficulties lifting profitability. Umicore is expected to deliver €1.17bn in EBITDA in 2022 which means that the company is valued at 10x on EV/EBITDA 1-year forward, which is roughly a 25% discount to the MSCI World Index. The consensus sell-side target price is €46.
As we wrote in our recent equity note Things are not adding up any longer in the car industry, the valuations on EV-makers have reached levels where expectations are likely exceeding what can be achieved in the coming years due to supply constraints. In our note, we suggest that investors might indirect ways to get exposure to the electrification of the transportation sector such as getting exposure to semiconductor manufacturers to the car industry, lithium miners, battery manufacturers, and Umicore also fits this group of alternatives for investors.
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