IFS: Diversified Earnings Keep ROE High, Valuation Still Discounted

What happened

IFS's latest results show an 18.5% Q2 ROE and double-digit profit growth, extending the trend of strong capital efficiency highlighted in our prior BUY report. The diversified model continues to perform, with Interbank as the core profit engine, while Interseguro's net income surged 46.8% and payment transaction volume grew 44%. Despite this robust performance, the market assigns a conservative multiple (10.56x P/E, 1.71x P/B), which we view as a reflection of Peru-specific risk rather than fundamental weakness. Our prior report had flagged potential volatility from investment mark-to-market and insurance impairments, but the latest figures show no material deterioration in these areas. Overall, the gap between fundamentals and valuation remains wide, supporting a continued BUY stance, though the margin of safety has narrowed somewhat due to share price appreciation.

Implication

Investors should maintain or initiate positions in IFS, as its diversified earnings stream and high profitability justify a higher multiple than the market currently assigns. The 18.5% ROE and double-digit profit growth, driven by banking, insurance, and payments, indicate durable competitive advantages. However, the valuation discount has narrowed compared to our prior report, so we would prefer adding on pullbacks rather than chasing strength. Peru-specific risks, including political and economic instability, remain the primary overhang and require ongoing monitoring. A disciplined approach—buying at or below current levels and using stops or position limits—can balance the attractive upside against these risks.

Thesis delta

Our BUY thesis is reinforced by the latest results, though the valuation discount has narrowed since our prior report (P/E from ~8x to ~10.6x). Profitability remains strong, but the margin of safety is thinner, so we would add on pullbacks rather than chase.