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Research: Financials
FinTech Group’s (FTG’s) proposed banking joint venture (JV) with Austrian Post has been abandoned in accordance with the feedback of the relevant regulatory bodies that the approval of a new banking licence might take between one and a half to two years. This supports FTG’s near-term earnings and leaves the business focused on its online brokerage activities. Meanwhile, 10-month KPIs indicate the brokerage business continues to perform well, with trades up 16% over the corresponding 10-month period. High-margin OTC products jumped 34% and represent c 25% of the total. In the wake of the recent de-rating, the shares look increasingly attractive on c 11x consensus FY19 earnings.
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FinTech Group |
Banking JV is abandoned with positive effect
Financial services |
Scale research report - Update
7 December 2018 |
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FinTech Group’s (FTG’s) proposed banking joint venture (JV) with Austrian Post has been abandoned in accordance with the feedback of the relevant regulatory bodies that the approval of a new banking licence might take between one and a half to two years. This supports FTG’s near-term earnings and leaves the business focused on its online brokerage activities. Meanwhile, 10-month KPIs indicate the brokerage business continues to perform well, with trades up 16% over the corresponding 10-month period. High-margin OTC products jumped 34% and represent c 25% of the total. In the wake of the recent de-rating, the shares look increasingly attractive on c 11x consensus FY19 earnings.
10-month KPIs: Trades rise 16% to 10.6m
Total brokerage customers rose 16% y-o-y (and 4% over four months) to stand at 285k. FTG estimates the addressable market size in Germany as 1.2–1.5m, growing at 1–2% per year. The 10.6m trades over 10 months indicate there were 4.0m trades over the July to October period, which includes the quiet summer months. The 4.0m translates to annualised c 42 trades per customer compared with over c 48 in H1. Importantly, OTC products (or exchange-traded products, ETPs) jumped 25%. An attractive new ETP product pricing regime took effect from 1 November and FTG will benefit from a full period of the new pricing in FY19.
Banking JV with Austrian Post is abandoned
In September, FTG announced a banking JV with Austrian Post whereby FTG would supply the technology and Post offered its established infrastructure. However, the agreement was dependent on JV receiving a banking licence before January 2020. FTG has now been informed by Austrian regulatory bodies that it would take 1.5–2.0 years to receive a banking licence. The parties could not agree on an alternative plan to passport FTG Banks’ German banking licence to the JV in order to start as originally scheduled with effect of 1 July 2019. As the parties have signed only a non-binding term-sheet, FTG was able to walk away without any penalties. The cancellation will support near-term earnings, as management had been forecasting losses from the JV until 2023. In addition, several other B2B projects that had been delayed following the Post deal are now back on track.
Valuation: Attractive relative to peer group
Following the recent de-rating, the shares trade on 10.6x FY19e consensus earnings. We believe this looks attractive relative to its peer group (see Exhibit 1) given FTG’s favourable growth profile along with improving margins.
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Consensus estimates
Source: Company data, Thomson Reuters |
Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.
Valuation: Attractive relative to peer group
The shares trade on 10.6x Thomson Reuters FY19e consensus earnings. This looks attractive relative to peers. FTG shares trade roughly in line with both Binckbank, the Dutch broker that has been struggling, and Swissquote, which has smaller growth and margins. The data for Comdirect, FTG’s key competitor in Germany, are distorted by the disposal of ebase.
Exhibit 1: Peer group comparison
Share price |
Market cap |
Revenue |
Revenue |
Operating profit |
Operating margin |
P/E (x) |
P/E (x) |
|||||||
local curr |
local curr |
Currency |
Year 0 |
Year 1 |
Year 2 |
CAGR |
Year 1 |
Year 2 |
Year 1 |
Year 2 |
Year 1 |
Year 2 |
||
FinTech Group |
FTKG.DE |
18.16 |
339 |
EUR |
107.0 |
124.2 |
143.3 |
15.7% |
37.8 |
45.3 |
30.4% |
31.6% |
12.9 |
10.6 |
Global B2C peers |
||||||||||||||
Avanza |
AVANZ.ST |
441 |
13,365 |
SEK |
1243.0 |
1076.1 |
1244.3 |
0.1% |
471.5 |
581.1 |
43.8% |
46.7% |
33.0 |
26.4 |
Binckbank |
BINCK.AS |
4.505 |
303 |
EUR |
148.5 |
145.6 |
146.6 |
(0.6)% |
35.6 |
35.0 |
24.4% |
23.9% |
10.2 |
11.4 |
Comdirect |
CDBG.DE |
10.6 |
1,493 |
EUR |
363.6 |
328.6 |
352.1 |
(1.6)% |
53.0 |
102.0 |
16.1% |
29.0% |
13.9 |
22.6 |
Etrade |
ETFC.O |
47.4 |
12,051 |
USD |
2452.0 |
2884.2 |
3080.4 |
12.1% |
1401.7 |
1467.1 |
48.6% |
47.6% |
12.4 |
11.2 |
FinecoBank |
FBK.MI |
9.062 |
5,499 |
EUR |
582.7 |
626.3 |
686.7 |
8.6% |
374.5 |
429.7 |
59.8% |
62.6% |
23.4 |
19.9 |
Interactive Brokers |
IBKR.K |
56.04 |
23,532 |
USD |
1834.0 |
1927.7 |
2180.9 |
9.0% |
1238.3 |
1484.3 |
64.2% |
68.1% |
26.5 |
21.2 |
Swissquote |
SQN.S |
44.35 |
680 |
CHF |
218.4 |
226.4 |
257.4 |
8.6% |
58.1 |
74.1 |
25.7% |
28.8% |
13.1 |
10.3 |
Averages excl FinTech Group |
5.2% |
40.4% |
43.8% |
16.0 |
15.4 |
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European B2B peers |
||||||||||||||
CREALOGIX |
CLXN.S |
120 |
167 |
CHF |
87.1 |
110.2 |
121.0 |
17.8% |
8.7 |
12.3 |
7.9% |
10.2% |
29.3 |
19.7 |
First Derivatives |
FRST.L |
2100 |
543 |
GBP |
186.0 |
215.9 |
242.6 |
14.2% |
29.3 |
31.7 |
13.6% |
13.1% |
25.9 |
23.5 |
GFT |
GFTG.DE |
7.56 |
199 |
EUR |
418.8 |
411.3 |
430.4 |
1.4% |
24.9 |
30.5 |
6.0% |
7.1% |
10.0 |
8.9 |
Gresham Technologies |
GHT.L |
89.5 |
61 |
GBP |
21.7 |
23.3 |
26.1 |
9.8% |
4.5 |
5.5 |
19.3% |
21.1% |
29.8 |
19.9 |
Sopra Steria |
SOPR.PA |
85.75 |
1,756 |
EUR |
3845.4 |
4071.0 |
4279.3 |
5.5% |
281.8 |
337.7 |
6.9% |
7.9% |
9.7 |
7.9 |
Temenos |
TEMN.S |
119.4 |
8,442 |
CHF |
735.4 |
848.2 |
950.5 |
13.7% |
249.5 |
296.9 |
29.4% |
31.2% |
40.9 |
34.9 |
Averages excl FinTech Group |
10.4% |
13.9% |
15.1% |
18.0 |
14.6 |
Source: Thomson Reuters. Note: Priced at 6 December 2018.
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