Luiz Inácio Lula da Silva won Brazil’s presidential runoff on 25 October with 51.79% of valid votes, after trailing Flávio Bolsonaro in the first round. Markets had positioned for a Bolsonaro win. Overnight, dollar futures rose about 10% against the real, and Nu Holdings (NU) was indicated near $11.75 before the US open, about 22% below Friday’s $15.16 close.

The updated report cuts weighted fair value to $13.10 from $16.00. The rating stays at Watchlist, but the reasons have changed, and so have the levels.

Three reasons to worry

1. The currency. Nu earns in reais and reports in dollars. A real that settles about 7% weaker takes about 7% off dollar earnings with no change in the business. That is the central case.
2. Rates and credit. Brazil’s policy rate sits near 14% with inflation above target. A weaker real delays cuts, raises deposit costs and adds stress on households. Nu’s 90+ day bad-loan rate was already 6.9% in June.
3. Tax. Nu paid about 14% of pre-tax profit in tax in the June quarter, against about 29% historically. A government that has pushed for higher taxes on fintechs makes that low rate harder to keep. A full reversion would cut forward earnings by roughly 17%.

Three reasons it may be overdone

1. Monzo is off. On 30 September Nu said in a filing that it is not pursuing a deal with Monzo. That reported £8bn-£10bn bid held the September rating back. It is gone.
2. The business has not changed. The June quarter brought net income of $1.06bn, a 33% return on equity and revenue up 39% at constant currency, from 139 million customers.
3. Part of the move is positioning. Brazilian assets rallied after the first round on a Bolsonaro lead. Some of Monday’s fall unwinds that trade, and the overnight moves came on thin volume.

What the levels mean now

The previous $12.40-$13.00 zone is withdrawn, because fair value now sits barely above it. The name becomes interesting at $10.50-$11.00, where fair value offers 19% to 25%. The currency decides the rest. If the real recovers to about 3% weaker, fair value is about $14.00. If it slides about 13%, fair value falls to about $12.03 and the band moves down to about $9.60-$10.00, so a falling price would not mean a cheaper stock.

Near-term dates: the Brazilian central bank’s rate decision on 4 November, third-quarter results expected in mid-November, and Nu’s first investor day on 8 December.

The full scenario table and the open-by-open price map are in the updated Nu Holdings (NU) report on our Reports page.