Q1 Results Bolster Bullish Thesis; Underwriting Strengthens

What happened

Intercorp Financial Services reported a strong Q1 2026, with net profit surging 34.9% YoY to S/601.9 million and annualized ROE reaching 19.4%, well above the 3Q25 run-rate of ~16%. Cost of risk fell to 1.4% from the ~2.1% plan, while net interest margin held stable at 5.2%, indicating improving credit quality and resilient spreads. Digital transformation is accelerating, with 84% of retail clients now digital, supporting fee income growth and operational efficiency. Despite a recent share price correction, the underlying operating trajectory appears stronger than previously modeled, with Q1 results validating the bull case outlined in the DeepValue report. However, we remain alert to potential investment portfolio mark-to-market volatility and one-off impairments that could obscure this positive momentum.

Implication

Investors should view the improved credit and profitability trends as validating the DeepValue report's bullish thesis, with reduced risk of thesis invalidation from credit deterioration. However, maintain vigilance on investment volatility and capital return execution, as these remain swing factors. The Q1 beat narrows the downside risk and supports a higher earnings trajectory, potentially justifying a higher multiple.

Thesis delta

The Q1 numbers meaningfully strengthen the bull case by showing credit quality improvement (cost of risk down to 1.4% vs. plan ~2.1%) and ROE expansion to 19.4%, above the ~16% seen in 3Q25. This reduces the probability of the 'sustained credit deterioration' watch item triggering a downgrade, shifting the risk-reward favorably. While investment volatility remains a wildcard, the core operating momentum is now better supported.