Strong momentum continued in Q118
FY17 revenues grew by c 13% to €107m while net profit surged by c 36% to €16.8m. The collateralised credit book grew by 54% to €202m and interest income jumped by 31% to €10.4m. The group saw a strong start to FY18, with 10k B2C clients added in Q1 (up 5% since December) and it settled 3.7m transactions (up 31% over Q117). This implies that the annualised number of trades per client jumped to c 56 in Q1, having fallen in FY17 due to historically low volatility last year. The jump in Q1 activity was driven by the spike in global stock market volatility in February.
In December 2017, Morgan Stanley, which has a strategic partnership with FinTech Group, acquired a 4% stake in FinTech Group, through the issue of 700k new shares for €18.2m in cash (€25.94 per share). This helped to boost the group’s equity ratio, which jumped to 10.2% at end-December from 5.9% a year earlier. The decline in customers‘ cash and deposits also boosted this ratio, with the decline due to FTG passing on the 0.4% negative interest rate to customers.
In March the supervisory board extended the CEO Frank Niehage’s contract to 2022. The company is holding its AGM on 7 August and it is scheduled to report its interim results on 30 September.
Exhibit 1: Key performance indicators
|
FY12 |
FY13 |
FY14 |
FY15 |
FY16 |
FY17 |
Q118 |
Transactions executed (000's) |
6,625 |
5,487 |
6,023 |
10,143 |
10,462 |
11,272 |
3,700 |
Number of retail customers (000's) |
118.2 |
126.1 |
134.4 |
176.6 |
212.0 |
253.8 |
264 |
Transactions per customer per year |
56.07 |
43.51 |
44.81 |
57.44 |
49.34 |
44.41 |
56 |
Customer assets under management (€m) |
2,810 |
3,527 |
4,043 |
5,770 |
10,855 |
11,794 |
|
of which: securities account volume |
2,272 |
2,795 |
3,236 |
4,784 |
9,512 |
10,910 |
|
of which: deposits account volume |
538 |
732 |
807 |
986 |
1,343 |
884 |
|
The FY17 growth was driven by the core broking activities, with commission income rising 21%, as well as the credit book with interest income jumping by nearly a third.
Exhibit 2: Revenue by type
€’000 |
2016 |
2017 |
Change (%) |
Commission income |
64,031 |
77,488 |
21.0 |
Provision of IT services |
15,583 |
16,006 |
2.7 |
Interest income |
7,799 |
10,352 |
32.7 |
Other operating income |
7,608 |
3,168 |
(58.4) |
Total |
95,021 |
107,014 |
12.6 |
In 2017, FTG significantly expanded its market share in Germany with flatex, and assumed the position of market leader in Austria with around 25,000 flatex.at customers. Flatex plans to build on its strategic partnership with Morgan Stanley aims to expand brokerage market share further in Germany. Plans are also in place to expand the brokerage business across Western Europe.
The credit book jumped by 49% over the year to c €202m. This primarily reflects the growth in the margin trading activity. FinTech Bank offers loans at a 4.9% interest rate on collateral, up to a maximum 25% LTV of the value of shares held by the customer.
ETP partnership with Goldman Sachs. In March, FTG announced a partnership with Goldman Sachs, with Goldman becoming a preferred ETP (Exchange Traded Products) partner at flatex. From 15 March, Goldman’s extensive product range has been available for flatex customers at a flat fee of €1.90, for order values of at least €1,000. This deal helps to expand flatex’s market leadership in trading certificates and warrants.
The group offers technology it uses within its brokerage and banking businesses to other businesses on a white labelled basis. There is a targeted contract lifetime of five to seven years with a contract lifetime value of €5-10m. Around 10% of the contract value is in set-up fees with the balance of 90% in recurring revenues. The group acquired two major new B2B projects in FY17, and FTG now has more than 30 B2B clients.
A key driver remains cost pressure, with return on equity c 4% for German banks compared with 8-10% globally. This puts pressure on banks to reduce costs and hence to outsource inefficient back office structures and processes. We note that IT is the second biggest cost for banks. A focus is to target FTG:CBS (core banking system) as the standard platform for private and specialised banks
The former ‘Securities Trading & Financial Services’ segment has been expanded to include FinTech Group Bank and renamed ‘Financials Services’ (FIN). The FIN segment thus includes the products in B2C online brokerage, B2B white-label banking, as well as electronic securities settlements, securities custody and other banking services.
The ‘Technologies’ (TECH) segment includes all IT services: among other things it develops and operates the group’s core banking system FTG:CBS. In addition, this segment includes research and development activities.
Exhibit 3: FY17 y-o-y analysis
|
2016 |
2017 |
€’000 |
FIN |
TECH |
Other |
Total |
FIN |
TECH |
Other |
Total |
Revenues |
73,394 |
33,733 |
(12,106) |
95,021 |
89,113 |
30,642 |
(12,742) |
107,013 |
Raw materials and consumables used |
(22,202) |
(6,766) |
3,487 |
(25,481) |
(28,688) |
(3,937) |
1,640 |
(30,985) |
Personnel expenses |
(10,390) |
(5,803) |
(3,297) |
(19,490) |
(15,353) |
(2,702) |
(5,088) |
(23,143) |
Other administrative expenses |
(22,781) |
(3,974) |
7,329 |
(19,426) |
(25,206) |
(3,050) |
7,445 |
(20,811) |
EBITDA |
18,021 |
17,189 |
(4,587) |
30,624 |
19,866 |
20,952 |
(8,744) |
32,075 |
Margins |
24.6% |
51.0% |
|
32.2% |
22.3% |
68.4% |
|
30.0% |
Depreciation and amortization |
|
|
|
(5,159) |
|
|
|
(5,590) |
EBIT |
|
|
|
25,465 |
|
|
|
26,484 |
Financial results |
|
|
|
(1,226) |
|
|
|
(1,288) |
EBT |
|
|
|
24,239 |
|
|
|
25,196 |
Income tax expense |
|
|
|
(3,956) |
|
|
|
(8,179) |
Earnings from continuing activities |
|
|
|
20,283 |
|
|
|
17,017 |
Earnings from discontinued operations |
|
|
|
(7,967) |
|
|
|
(220) |
Consolidated net profit |
|
|
|
12,316 |
|
|
|
16,797 |
Research & development (R&D)
FTG spent €10.0m on R&D in FY17, up from €6.6m in FY16, of which €7.9m was capitalised and €2.1m was expensed. The increase related to several B2B projects the group is working on.
Exhibit 4: Research & development
€’000 |
2016 |
2017 |
Change (%) |
Development |
4679 |
7889 |
68.6 |
Research |
1949 |
2086 |
7.0 |
R&D total |
6628 |
9975 |
50.5 |
% sales |
7.0% |
9.3% |
|
R&D capitalised |
5304 |
7889 |
48.7 |
R&D expensed |
1324 |
2086 |
57.6 |
R&D amortised |
2122 |
2192 |
3.3 |
Net capitalised |
3182 |
5697 |
79.0 |
Source: FinTech Group accounts
