NAV boosted by revaluation gains

FinLab 15 September 2017 Update
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Financials: H117 results released

FinLab reported a considerable increase in pre-tax profit to €3.03m in H117 from €0.50m a year ago. This was largely driven by the write-ups of securities and financial assets of €2.52m (compared with -€0.3m in H116), resulting to some extent from the revaluation of Kapilendo following the capital increase and write-up of the holding in Heliad Equity Partners on the back of the solid share price performance (+18% in H117). Furthermore, the company recorded €0.73m income from the sale of securities and financial assets (up 46.2% y-o-y), with the retirement of securities and financial assets remaining broadly stable (-€0.54m vs -€0.51m in H116).

EBIT declined 57.0% y-o-y to €0.30m in H117, mostly due to a 6.6% decline in total income (€1.76m in H117) and a 23.4% y-o-y rise in operating costs, in particular a 66.7% increase in occupancy costs to €0.29m and higher personnel expenses (up 21.7% y-o-y to €0.85m in H117, largely related to options valuation under the employee stock option plan, ESOP). As a result of lower income tax (c €36,000 vs €99,000 in H116), net income improved to €3.00m from €0.40m in H116, implying a diluted EPS of €0.63 vs €0.09 a year ago. Including the change in the revaluation reserve, overall income went up to €7.6m from €0.6 in H116.

FinLab’s net cash position improved to €4.28m from €0.97m at end-2016, mostly on the back of the capital increase completed in May 2017, which provided the company with proceeds of €5.85m. Some of this was already spent on investments (€3.87m vs €1.50m last year). Operating cash flow of €1.10m in H117 (vs €0.22m in H116) further contributed to FinLab’s improvement in liquidity.

Exhibit 1: Results highlights

€000s

H117

H116

Change
y-o-y (%)

Revenue

760

990

(23.2)

Income from investments

669

500

33.8

Other operating income

326

391

(16.6)

Total income

1,756

1,881

(6.6)

Personnel expenses

(852)

(700)

21.7

Non-personnel expenses

(601)

(477)

26.0

EBIT

303

704

(57.0)

Financial result, of which:

2,728

(203)

N/M

Income from the sale of securities and financial assets

725

496

46.2

Retirement of securities and financial assets

(535)

(509)

5.1

Write-ups and write-downs of securities and financial assets

2,522

(274)

N/M

Interest and similar income

6

84

N/M

EBT

3,031

501

505.0

Taxes on income

(36)

(99)

(63.6)

Net result for the period

2,995

403

643.2

Average no. of shares (diluted)

4,747,022

4,547,891

4.4

EPS (diluted, €)

0.63

0.09

612.0

Overall result (including change in revaluation reserve)

7,561

576

N/M

Source: FinLab accounts

Valuation

FinLab’s growth is driven by its fintech activities and shareholder value should be driven by its ability to grow the NAV over time. Earnings in any given year can be less informative as the timing of revaluations and exits, which are reflected in the income statement on recognition, can be volatile.

FinLab’s NAV has grown rapidly since the company’s inception at the end of 2014 to the end of 2016 (see Exhibit 2 below) and the discount to NAV has narrowed sharply from 54% at end 2013 to 11% as at end-2016, suggesting that the change in strategic direction on the creation of FinLab has been well received by investors.

NAV per share as at end-June stood at €16.13, which represents a 7.2% increase from end-March (€15.04) and 9.1% compared to end-2016 (€14.79). The company’s share price currently stands at €19.18, which represents an 18.9% premium to last reported NAV. However, 37% of FinLab’s NAV at end-June is its holding in Heliad, which was valued at a 26.0% discount to its own NAV (the share price at end-June was €6.75 vs NAV at €9.16). While it is typical for investment companies to trade at a discount, it could be useful to consider the impact on FinLab’s NAV if Heliad’s assets were reflected at fair value (NAV). If the discount was removed, FinLab’s NAV would rise to over €90m, suggesting a premium to NAV of c 5%. Furthermore, end-June NAV does not reflect the recent seven-figure euro investment in Vaultoro and it seems that the market expects FinLab to use its cash pile to make further earnings- and value-accretive acquisitions following the recent capital increase.

Exhibit 2: FinLab’s share price and NAV performance

Source: FinLab’s corporate website, Edison Investment Research

Exhibit 2: FinLab’s share price and NAV performance

Source: FinLab’s corporate website, Edison Investment Research

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