Credit Update: 5.5%-yielding bonds from a fintech disruptor in Brazil’s wealth management space

XP Inc. (XP) is a leading brokerage in Brazil, and a formidable challenger to the country’s traditionally bank-dominated financial sector. It operates a well-established digital platform offering a wide range of investment products (e.g. equities, fixed income, funds), while also cross-selling into adjacent products such as credit cards, insurance, and retirement plans. In addition, XP has built one of the largest independent financial advisor (IFA) networks in Brazil with over 18,000 IFAs.

We previously covered this issuer and its bonds maturing in mid-2026. As that maturity approaches, we now recommend its 2029 bonds for investors looking at 5.5% yields on a 3-year bond.

Healthy revenue growth across business segments

(Unless otherwise stated, all figures are in Brazilian Real [R$], and percentage changes are year-on-year [YoY]. Data as of XP’s latest FY25 financials [31 Dec 2025].)

XP delivered healthy revenue growth in FY25. Gross revenues rose +8% to R$19,447m, while net revenue increased +8% to R$18,412m. Growth was broad-based, with all reported segments delivering either positive or stable top-line performance (Table 1).

XP’s ‘Retail’ segment, accounting for 75% of gross revenues, recorded +8% top-line growth to R$14,584m in FY25. Client assets increased by +12%, though this was partially offset by lower take rates (Chart 1). This effect was prominent in the fixed income sub-segment, which saw flattish revenues (-2%) as clients shifted toward lower-fee CGs (short-term liquidity products similar to bank deposits). Encouragingly, XP continued to deliver growth across many of its other Retail sub-segments, underscoring the success of its cross-selling strategy (Chart 2).

Apart from Retail, Corporate & Issuer Services (C&IS) emerged as a standout contributor, with revenues rising by +32% to R$2,733m in FY25. Debt capital markets (DCM) activity remained healthy in Brazil (Chart 3), while demand for hedging services increased amid volatility in the rates and FX markets (e.g. Selic rate rising from 12.25% to 15.00%). Hedging revenues were further supported as an add-on service to DCM transactions, highlighting XP’s growing corporate solutions ecosystem. We see C&IS as a potential new growth engine for XP that helps diversify its revenue base beyond Retail.

Table 1: XP delivered broad-based revenue growth in FY25

Chart 1: Lower take-rate partially offset the effect of higher AUC

Chart 2: XP’s sub-segments within retail (excluding equities / fixed income) showed strong growth

Chart 3: Solid DCM activity and growing market share helped to support XP’s revenues

Steady growth with costs well-managed

XP’s cost growth remained broadly aligned with business expansion. Operating costs rose +8%, while selling, general & administrative expenses increased +10%, compared with +8% revenue growth. Most of the cost increase reflected deliberate growth investments, including headcount expansion, higher compensation costs, and continued spending on IT infrastructure to enhance long-term efficiency.

Margins, therefore, remained resilient. Earnings-before-tax margin improved slightly to 30% in FY25 (FY24: 29%) while net margins increased to 28% (FY24: 26%). XP also managed to sustain efficiency gains, with efficiency and compensation ratios hovering at much lower levels than in 2022, indicating continued operating discipline despite ongoing investments (Chart 4).

Overall, XP appears to be scaling its business sustainably, delivering solid revenue growth without incurring excessive spending. Income before tax grew +9% to R$5,449m, while net income rose +14% to R$5,169m.

Chart 4: Cost ratios remained steady, and remain on a downward trend versus previous years

Outlook: Expect continued steady performance

Revenue set to continue growing at a healthy pace

Retail should remain the primary revenue driver, supported by consistent net new money inflows. Management has guided for approximately R$20b in net new money inflows per quarter, providing some cushion against market-driven volatility. Meanwhile, while take rates faced pressures in 2025, we expect a gradual normalisation over time, especially if Central Bank of Brazil rate cuts materialise (Table 2). Both factors would help stabilise revenues even in a less buoyant market environment.

In addition, XP’s cross-selling strategy has already demonstrated tangible results. Management’s 2026 target of R$4b to R$5b in cross-sell revenues was achieved in 2025 (ahead of schedule). The C&IS segment serves as a further growth and diversification lever, helping reduce concentration risks relating to retail lows. Together, multiple growth engines could enhance the resilience of XP’s earnings profile over time.

Management’s previous guidance of R$22.8b to R$26.8b in 2026 gross revenues implies at least +17% growth from FY25. In its recent FY25 earnings call, management appeared confident in achieving revenue growth above FY25’s +8% rate. We think high-single-digit to low-double-digit revenue growth remains achievable in 2026, supported by positive inflows and continued momentum across different business segments.

Costs to be well-managed

On the cost side, management has reiterated that technology investments and efficiency initiatives will continue. Recent quarters demonstrate that XP can absorb these investments while keeping its efficiency ratios broadly stable.

We expect margins to stabilise around current levels in 2026 (e.g. ~35% efficiency ratio), though there is scope for greater margin expansion from 2027 onward as productivity gains materialise. Over time, increased usage of technology (including AI-driven tools) should allow XP to scale its business more efficiently, materially increasing its cost base. Importantly, this should translate into continued profits and cashflow generation.

Table 2: Take rates have suffered since recent rate hikes (4Q24 – 3Q25), but markets are pricing in upcoming rate cuts in the next 1 year

Conservative credit profile

XP’s credit profile remains conservative and supported by a strong track record of earnings generation. Its core business is fee-based and transaction-driven, centred on retail investment distribution and corporate advisory services. Hence, it is not surprising that loan-loss rates remain contained at just 0.5% at the Group level.

Although XP has expanded into banking-like services such as loans and credit cards, these activities remain manageable relative to its core business. Loan-loss rates on its loans/cards portfolio stand at around 1.3% (Chart 6), and have stabilised over recent quarters. Importantly, a significant portion of the loan book (around R$26b out of ~R$34b) is supported by either pledged collateral or client assets (e.g. client investments, or underlying instruments of structured products), which may structurally limit the severity of losses.

Funding and liquidity risks appear limited. XP’s funding base is primarily sourced from client deposits, and we do not foresee material funding constraints given attractive deposit rates in Brazil. XP’s R$19.2b in cash and equivalents as of end-December comfortably covers maturing deposits over the next 60 days (R$17.7b), indicating a decent funding ratio. In any case, credit and banking activities remain relatively small components of XP’s overall business model.

Finally, XP’s balance sheet leverage remains conservative. XP is currently in a net-cash position, and its gearing ratio (net debt to total capital) has remained structurally low, below 25% in recent years. Movements in this ratio over quarters appear operationally driven, with no indication of structural leverage expansion. In addition, XP reported a CET1 ratio of 17.3% and a total capital ratio of 20.4%, which likely represents a comfortable buffer over regulatory requirements.

(Note: XP does not state its exact requirement, but we expect the total capital ratio requirement to hover around the 10.5% region, which is significantly lower than its actual 20.4%.)

Chart 5: Loan loss rate has stabilised in the past few quarters

Key risks you should be aware of

XP’s biggest risk stems from its sensitivity to market and macro cycles. A weaker market environment would primarily affect its Retail franchise through lower AUC and potentially softer client activity, reducing both asset-based and transaction revenues. A challenging macro backdrop could also dampen DCM activity and increase credit losses, particularly if its card portfolio continues to expand. We see higher take rates mitigating this, though XP will not be fully immune if the situation in Brazil deteriorates significantly.

Execution risks remain relevant, too. XP’s continued investments in technology and advisor hiring support long-term growth but raise its near-term costs. Nonetheless, XP has already demonstrated an ability to scale newer revenue streams (e.g. ‘Other Retail’ and C&IS), while maintaining stable or improving efficiency and compensation ratios. We will certainly monitor its costs and accompanying ratios but believe execution risks remain manageable at present.

Our recommendation – XP’s 2029 bonds

We remain constructive on XP’s credit profile. The company continues to deliver resilient and increasingly diversified earnings, driven by growth in its core Retail franchise, and complemented by rapid growth in its Corporate & Issuer Services segment. Cost growth remains broadly aligned with revenue growth, allowing profitability to grow at a decent pace. Bondholders can also benefit from XP’s stable asset quality and net-cash position today.

XP’s bonds offer yields of about 5.5%, for a short tenor of just 3.4 years. Relative to peers, we view this as an attractive option for an issuer like XP with a solid credit profile (Table 3).

• Banco BTG Pactual has some overlap with XP’s business model, particularly in investment banking (specifically DCM) and wealth management. However, its business is more oriented toward institutional clients rather than XP’s retail-dominated business. XP’s bonds offer decent yield pickups of 25 – 50 bps, despite being only one notch lower in credit rating.
• Itaú Unibanco and Banco Bradesco also operate in Brazil, but are better characterised as diversified banks, contrasting with XP’s retail brokerage and wealth management core. We treat them as peers within the broader Financials space and find that XP’s bonds also offer yield pickups for roughly one notch lower in rating.
• Charles Schwab represents a large-scale analogue to XP’s brokerage and wealth management model, though it operates primarily in the US instead of Brazil. Charles Schwab benefits from its much stronger investment-grade credit rating, though XP provides a significantly more attractive yield (5.5%) than Charles Schwab (3+%) for investors seeking regular income.

Table 3: Peer comparison

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold NIL positions in the abovementioned securities. This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.