H1 results: In line with management’s expectations
Revenue rose 18% to €58.5m while EBITDA jumped by 42% to €18.4m, as the EBITDA margin jumped by 520bp to 31.5%. The growth was driven by the FIN segment, which saw its revenues rise 26% to €52.3m. This reflected the strong growth in transaction volumes, and the operational gearing fed through to the bottom line with the FIN division’s EBITDA margin surging 620bp to 28.9%. The new partnership with Goldman Sachs is going well; FTG has nine product partners; the top five are Morgan Stanley, BNP Paribas, Goldman Sachs, UBS and Vontobel. The TECH segment dipped as the division continues to undergo heavy investment in the core banking system FTG:CBS and this will continue in H2.
Exhibit 1: H118 y-o-y analysis
|
|
|
|
H117 |
|
|
|
H118 |
(€000s) |
FIN |
TECH |
Other* |
Total |
FIN |
TECH |
Other* |
Total |
Revenues |
41,414 |
17,844 |
(9,696) |
49,562 |
52,256 |
16,378 |
(10,136) |
58,498 |
Raw materials and consumables used |
(12,660) |
(3,315) |
1,925 |
(14,050) |
(14,060) |
(1,834) |
909 |
(14,985) |
Personnel expenses |
(7,464) |
(6,465) |
2,512 |
(11,417) |
(8,578) |
(6,205) |
2,554 |
(12,229) |
Other administrative expenses |
(11,874) |
(4,479) |
5,259 |
(11,094) |
(14,495) |
(5,061) |
6,673 |
(12,883) |
EBITDA |
9,416 |
3,584 |
|
13,001 |
15,123 |
3,277 |
|
18,402 |
Margins |
22.7% |
20.1% |
|
26.2% |
28.9% |
20.0% |
|
31.5% |
Depreciation and amortization |
|
|
|
(2,590) |
|
|
|
(3,527) |
EBIT |
|
|
|
10,411 |
|
|
|
14,874 |
Financial results |
|
|
|
(674) |
|
|
|
(957) |
EBT |
|
|
|
9,737 |
|
|
|
13,917 |
Income tax expense |
|
|
|
(2,699) |
|
|
|
(4,442) |
Earnings from continuing activities |
|
|
|
7,038 |
|
|
|
9,475 |
Earnings from discontinued ops |
|
|
|
(88) |
|
|
|
(94) |
Consolidated net profit |
|
|
|
6,950 |
|
|
|
9,381 |
Source: FinTech Group. Note: *Other represents inter-divisional; TECH provides IT to the FIN segment.
The KPI data indicate that Q2 was a quieter period that Q1, with c 2.9m transactions versus c 3.7m in Q1.This was reflected in the transactions per customer, which fell from c 56 in Q1 to 48 for the whole of H1. Customer assets continued to grow nicely, but the primary focus for FTG is on driving transaction volumes as that is the biggest driver of profits.
Exhibit 2: Key performance indicators
|
FY12 |
FY13 |
FY14 |
FY15 |
FY16 |
FY17 |
H117 |
H118 |
Change H/H % |
Transactions executed |
6,625,418 |
5,486,715 |
6,023,210 |
10,143,219 |
10,462,477 |
11,272,496 |
5,505,237 |
6,628,374 |
20.4 |
Number of retail customers |
118,170 |
126,111 |
134,403 |
176,600 |
212,040 |
253,825 |
234,874 |
274,830 |
17.0 |
Transactions per customer per year |
56.07 |
43.51 |
44.81 |
57.44 |
49.34 |
44.41 |
46.88 |
48.24 |
2.9 |
Customer assets under management (€m) |
2,810 |
3,527 |
4,043 |
5,770 |
10,855 |
11,794 |
11,238 |
12,120 |
7.8 |
of which: securities account volume |
2,272 |
2,795 |
3,236 |
4,784 |
9,512 |
10,910 |
10,310 |
11,166 |
8.3 |
of which: deposits account volume |
538 |
732 |
807 |
986 |
1343 |
884 |
929 |
954 |
2.7 |
Gross commission income jumped 23% to €45.3m, helped by the introduction of new brokerage products, which are mainly exchange traded products. After deducting commission expenses, net commission income rose 20% to €33.0m. Gross interest income jumped 28% as the group’s credit book continued to grow at pace, mainly relating to margin trading (60–70%) and factoring (25–30%). The credit book stood at c €195m at end June and yields c 4.5%. Meanwhile, provision of IT services dipped as the focus there remains on heavy investment.
Exhibit 3: Revenue by type (gross basis)
(€000s) |
H117 |
H118 |
Change (%) |
Commission income |
36,711 |
45,303 |
23.4 |
Provision of IT services |
7,164 |
6,337 |
(11.5) |
Interest income |
4,258 |
5,453 |
28.1 |
Other operating income |
1,429 |
1,416 |
(0.9) |
Total |
49,562 |
58,509 |
18.1 |
Landmark deal with Austrian Post (Österreichische Post)
BAWAG floated on the Vienna stock exchange in October 2017, raising €1.9bn in Austria’s biggest ever listing. Prior to its IPO, BAWAG announced it planned to give notice to Post on their partnership, instead choosing to operate its own network of branches. BAWAG had been paying Post an annual fee (we understand around €60m) for the use of Austrian Post’s infrastructure. The arrangement has been highly profitable for BAWAG (VIE: BG, market cap €4.1bn), generating revenues of €224.6m in FY17, for 40% profit margins (34% in FY16), and representing 43% of its total pre-tax profits in FY17.
Following the termination, Post conducted a ‘beauty contest’ for a new financial services partner. Post operates a highly profitable traditional post office business. However, this is a mature business, threatened by email, and management wants to diversify the group’s income sources. Consequently, it wanted to hold an equity interest in a new financial services venture. Post selected FTG because FTG was the only one that could provide both banking and technology. The BAWAG relationship ends in December 2019, while the new joint venture is expected to begin trading in July 2019, pending the granting of the relevant banking licence. Given that FTG has operated a banking business in Austria for almost a decade and has had to file data with Austrian regulators, it believes this process will be a formality and a licence would be expected early next year. There will then be a pilot phase in c 50 branches, with basic banking functions.
Exhibit 4: Deal structure
|
|
|
|
Both FTG and Post are investing €112.5m in the new joint venture so that €225m equity will be provided by 2025. FTG is funding its investment with a €35m share placement with Post (1,225,761 new shares at c €28.55) and transferring its interest in flatex.at for a €25m valuation. The remaining €52.5m is payable over 2020 to 2023 and is effectively fully funded as the joint venture will pay FTG at least €10m per year for the IT infrastructure including the core banking system and operating IT system along with services. The amount could rise, depending on the level of services that are contracted. The joint venture has the use of Post’s 433 post office branches as well as 1,351 postal partners. Post enjoys c 60m customer contacts per year, and after BAWAG stops offering its products in Post’s c 1,750 branches and postal partners, many of its customers will have a strong interest in becoming a customer of the new joint venture, especially in rural areas, since BAWAG has fewer than 100 of its own branches. FTG believes it can achieve revenues of €300 per customer and projects adding 250k customers in 2021 and 400k in 2025. It forecasts the joint venture will break even by 2022 and generate net profit of €35m in 2025.
