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Research: Financials
Flatex reported H120 earnings of €22.4m (+162% y-o-y) and ROE of 23.1%. Volatile markets helped trade executions jump 127% y-o-y to €13.1m. Client numbers continue to grow strongly, up 35% y-o-y. On 21 July 2020, the Dutch central bank gave Flatex the green light to acquire DEGIRO, a leading Dutch broker. The acquisition (agreed in December 2019) is transformational, adding greater scale and breadth of products to make Flatex Europe’s largest retail online broker, present in 18 countries. If we include DEGIRO, the combined number of transactions in H120 would have been 37.6m and the number of customers almost triples to 1.1 million. The shares have reacted well to the news, but still trade at a discount to peers on both P/E and EV/EBIT despite consensus forecasts of above average growth.
Written by
Flatex |
Grateful for volatility
Financial services |
Scale research report - Update
14 October 2020 |
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Flatex reported H120 earnings of €22.4m (+162% y-o-y) and ROE of 23.1%. Volatile markets helped trade executions jump 127% y-o-y to €13.1m. Client numbers continue to grow strongly, up 35% y-o-y. On 21 July 2020, the Dutch central bank gave Flatex the green light to acquire DEGIRO, a leading Dutch broker. The acquisition (agreed in December 2019) is transformational, adding greater scale and breadth of products to make Flatex Europe’s largest retail online broker, present in 18 countries. If we include DEGIRO, the combined number of transactions in H120 would have been 37.6m and the number of customers almost triples to 1.1 million. The shares have reacted well to the news, but still trade at a discount to peers on both P/E and EV/EBIT despite consensus forecasts of above average growth.
A very good H120
The strong revenue numbers allowed Flatex to report a record EBITDA margin of 42.8%, vs. 30.7% H119. The Financial division (FIN) drove earnings with an EBITDA margin of 44%, +216% y-o-y. Technology (TECH) division revenues grew 2.9%, but the EBITDA margin of 15.9% was below 20% for the first time in a long time. However, the margins tend to be volatile in this division. Financial debt was €73.5m (36% of equity). EBITDA was €42.7m and financial expenses only €1.7m.
DEGIRO acquisition closed in July
Following approval by the regulator in July, Flatex paid €36.4m in cash and issued 7.5m Flatex shares to other DEGIRO shareholders to acquire the remaining 90.6% of outstanding shares it did not already own. The acquisition of DEGIRO, a Dutch pan-European online broker, gives Flatex greater scale and geographic presence. It becomes Europe’s largest retail broker and is the fastest growing online broker in Europe. Management reiterated its €30m in annual cost synergies and DEGIRO is expected be fully consolidated from August 2020. Flatex’s debt level remains moderate even after the DEGIRO acquisition. Combined debt is c €115m, with H120 EBITDA of €75m, a debt to equity ratio of 54% and an EBITDA to interest multiple of roughly 15x based on H120 numbers.
Valuation: Discount for premium growth
Flatex is trading on a P/E of 23.7x for FY20 and 18.3x for FY21 on consensus forecasts. Both its P/E and EV/EBIT ratios are at a discount to its B2B and B2C peer average despite consensus forecasting above-average growth.
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Consensus estimates
Source: Flatex, Refinitiv |
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.
H120 results
Flatex reported H120 of earnings €22.4m, +162% y-o-y, and revenue of €100m, up 55% y-o-y. Reported EBITDA was €42.7m, up 116% y-o-y. The very strong business volume growth led to a total group EBITDA margin expanding to a record 42.8%. We would caution that these volumes are extraordinary and are likely to come down when the market turbulence subsides. Therefore, the margin might not be easy to sustain or improve.
The FIN division (where the brokerage resides) revenue grew 63%, while the TECH division rose 2.9% y-o-y. As often happens with Flatex, consolidation effects and other revenue contributed to the higher segment revenue growth numbers, so the underlying segments’ growth is higher than the total group’s figures.
The volatile markets in the first half of 2020 led to a 127% increase in executed transactions year-on-year. The number of clients grew strongly to 424,000, +35% y-o-y, and +17% since FY19.
Exhibit 1: Key performance indicators
Business volumes |
H118 |
H218 |
H119 |
H219 |
H120 |
Transactions executed (000s) |
6,628 |
5,855 |
5,792 |
6,692 |
13,119 |
Number of retail customers (000s) |
275 |
290 |
313 |
368 |
424 |
Transactions per customer per year |
48.2 |
40.3 |
37.0 |
36.4 |
61.9 |
Customer assets under management (€m) |
12,120 |
10,995 |
12,813 |
14,586 |
13,634 |
of which: securities account volume |
11,166 |
10,000 |
11,869 |
13,600 |
12,229 |
of which: deposits account volume |
954 |
995 |
945 |
986 |
1,405 |
Year-on-year (%) |
|||||
Transactions executed |
20 |
2 |
(13) |
14 |
127 |
Number of retail customers |
17 |
14 |
14 |
27 |
35 |
Transactions per customer per year |
3 |
(11) |
(23) |
(10) |
67 |
Customer assets under management |
8 |
(7) |
6 |
33 |
6 |
Source: Flatex
The TECH division EBITDA margin was 15.9% for H120 and this is below average (for example in H119 it was 40%). This is a B2B business, focused in Germany, and the EBITDA margin tends to be volatile reflecting different contracts and different stages of fulfilling them. We note that in its interim report, management has guided for a ‘moderately increasing’ EBITDA for FY20 compared to FY19 (it was 45.2%). The TECH division also provides important support for FIN’s operations including the expansion abroad and management expects it to play a critical role in the integration with DEGIRO.
Exhibit 2: Income summary by segment
€000s |
H118 |
H119 |
H120 |
H120/19 % |
|
FIN Division |
|||||
Revenues |
52,256 |
55,667 |
90,500 |
62.6 |
|
Raw materials and consumables used |
(14,060) |
(24,071) |
(23,299) |
-3.2 |
|
Personnel expenses |
(8,578) |
(4,578) |
(12,843) |
180.5 |
|
Other administrative expenses |
(14,495) |
(4,152) |
(14,536) |
250.1 |
|
EBITDA |
15,123 |
12,594 |
39,821 |
216.2 |
|
EBITDA margin % |
28.9% |
22.6% |
44.0% |
||
TECH Division |
|||||
Revenues |
16,378 |
17,627 |
18,137 |
2.9 |
|
Raw materials and consumables used |
(1,834) |
(1,750) |
(1,707) |
-2.5 |
|
Personnel expenses |
(6,205) |
(10,116) |
(10,093) |
-0.2 |
|
Other administrative expenses |
(5,061) |
(8,887) |
(3,457) |
-61.1 |
|
EBITDA |
3,277 |
7,147 |
2,880 |
-59.7 |
|
EBITDA margin % |
20.0% |
40.5% |
15.9% |
||
Other/consolidation effects |
|||||
Revenues |
(10,136) |
(8,945) |
(8,859) |
||
Raw materials and consumables used |
909 |
5,562 |
5,564 |
||
Personnel expenses |
2,554 |
2,148 |
2,609 |
||
Other administrative expenses |
6,673 |
1,235 |
686 |
||
EBITDA |
0 |
0 |
0 |
Source: Flatex
Exhibit 3: Income summary – total group
€000s |
H118 |
H119 |
H120 |
H120/19 % |
|
Revenues |
58,498 |
64,350 |
99,778 |
55.1 |
|
Raw materials and consumables used |
(14,985) |
(20,259) |
(19,442) |
-4.0 |
|
Personnel expenses |
(12,229) |
(12,546) |
(20,327) |
62.0 |
|
Other administrative expenses |
(12,883) |
(11,804) |
(17,307) |
46.6 |
|
EBITDA |
18,401 |
19,740 |
42,701 |
116.3 |
|
EBITDA margin % |
31.5% |
30.7% |
42.8% |
||
Depreciation and amortisation |
(3,527) |
(5,962) |
(6,928) |
16.2 |
|
EBIT |
14,874 |
13,779 |
35,773 |
159.6 |
|
Financial results |
(957) |
(1,153) |
(1,701) |
47.5 |
|
EBT |
13,917 |
12,625 |
34,072 |
169.9 |
|
Income tax expense |
(4,442) |
(4,079) |
(11,698) |
186.8 |
|
Tax rate |
31.9% |
32.3% |
34.3% |
||
Earnings from continuing activities |
9,474 |
8,547 |
22,374 |
161.8 |
|
Earnings from discontinued operations |
(220) |
(94) |
0 |
0 |
|
Consolidated net profit |
9,380 |
8,547 |
22,374 |
161.8 |
|
Source: Flatex
Time to make acquisition work
Now that DEGIRO is being purchased, management’s focus is now to make the merger work. The merger transforms it into Europe’s largest retail broker with the whole value-chain in house. The five year target is €300m in revenue, EBITDA of €150m and EPS of €3.0.
This compares with current consensus market forecasts for EBITDA of €87m in FY20 and €116m in FY21. The pro-forma EBITDA of Flatex with DEGIRO was €75.2m in just the first six months of 2020, but volumes have been unusually strong and so doubling the half year result would not be an accurate extrapolation to full-year results, in our view.
Exhibit 4: Flatex with DEGIRO combined pro forma
Flatex |
DEGIRO |
Combined |
Combined |
|
€m |
FY19 |
FY19 |
FY19 |
H120 |
Revenue |
132 |
59 |
191 |
169 |
EBITDA |
38 |
11 |
49 |
75 |
Net profit |
15 |
8 |
23 |
46 |
Equity |
182 |
24 |
207 |
255 |
Brokerage clients (000s) |
368 |
482 |
850 |
1,000 |
Transactions (m), B2C only |
12.3 |
19.1 |
31.4 |
37.6 |
Source: Flatex
The strategy will be to use both brands (Flatex and DEGIRO) but with same low-cost strategy. It remains a trading platform only business, which reduces regulatory administration and costs. It also retains the flat price approach for all asset types and transaction sizes. This currently is a maximum of €5.90 per trade. There will be improved product offering for both brands with the acquisition. For example, DEGIRO currently offers futures and options while Flatex does not, while Flatex offers extended trading hours and DEGRIO does not.
Flatex management reiterated the previously disclosed €30m in synergy cost savings (equal to 20% of operating costs in the five-year plan) that it expects to achieve already in FY21. These are broken down as follows: flow-related (€15–20m); IT savings (€10–15m); single corporate structure (€3–5m); and greater scale, such as marketing and bargaining power (€3–5m).
The original DEGIRO offer (a friendly transaction that was supported by its management) was for €60m in cash and €190m in Flatex shares and was agreed in December 2019. Flatex then purchased a 9.4% initial stake paid in cash (€23.5m). Following regulatory approval in July, on 30 July it paid the remaining cash (€36.4m) and issued 7.5m new shares to acquire the remaining 90.6% stake in the company. It now owns 100% of DEGIRO and expects to consolidate the results as of August 2020.
Exhibit 5: Balance sheet and cash flow
Balance sheet (€000s) |
FY18 |
H119 |
H219 |
H120 |
Intangible assets |
82,664 |
86,977 |
92,722 |
93,879 |
Other non-current assets |
49,829 |
52,619 |
86,978 |
77,870 |
Total non-current assets |
132,493 |
139,596 |
179,700 |
171,749 |
Financial assets |
58,267 |
69,135 |
61,761 |
80,342 |
Current loans due to customers |
213,675 |
232,230 |
362,552 |
422,622 |
Equity instruments |
82,465 |
84,449 |
134,693 |
129,503 |
Cash |
655,046 |
607,277 |
468,616 |
932,352 |
Other |
82,223 |
81,299 |
58,640 |
43,595 |
Total current assets |
1,091,676 |
1,074,390 |
1,086,262 |
1,608,414 |
Total assets |
1,224,169 |
1,213,986 |
1,265,962 |
1,780,163 |
Total non-current liabilities |
30,395 |
34,140 |
38,710 |
38,058 |
Liabilities to customers |
955,489 |
917,234 |
950,777 |
1,429,248 |
Liabilities to banks |
57,259 |
56,235 |
71,694 |
57,227 |
Other liabilities |
17,370 |
23,150 |
22,580 |
51,247 |
Total current liabilities |
1,030,118 |
996,619 |
1,045,051 |
1,537,722 |
Total liabilities |
1,060,513 |
1,030,760 |
1,083,761 |
1,575,780 |
Equity |
163,656 |
183,226 |
182,202 |
204,383 |
Total financial debt and leases |
73,085 |
73,623 |
88,916 |
73,493 |
Cash flow |
H119 |
H219 |
H120 |
|
Cash flow operations - before banking |
30,765 |
18,662 |
52,074 |
|
Cash flow from banking operations |
(71,035) |
(135,638) |
421,452 |
|
Cash flow from operations |
(40,270) |
(116,976) |
473,526 |
|
Cash flow from investments |
(15,165) |
(18,024) |
(5,297) |
|
Cash flow from financing |
7,666 |
(3,661) |
(4,494) |
|
Net cash flow |
(47,769) |
(138,661) |
463,735 |
|
Cash and cash equivalent end of period |
607,277 |
468,616 |
932,352 |
Source: Flatex
Valuation
Flatex’s share price has been strong over the last year. It reacted well to DEGIRO acquisition and Flatex had flagged to the market during Q120 that it was doing very well in the volatile financial markets. Flatex is now trading on forward P/E ratios of 23.7x (FY20e) and 18.3x (FY21e) based on consensus forecasts. FY20 is above the average for B2B peers (16.8x), but below that of the B2C (31.2x) if we exclude loss-making outlier Crealogix from the averages. Its 2021 P/E is lower than the averages for B2B (20.0x) and B2C (25.5x, ex Crealogix). Consensus is factoring in above-average EPS growth for Flatex; we suspect this is in good measure due to the acquisition of DEGIRO. Flatex has one of the lowest 2021 EV/EBIT ratios among its peers at 15.6x. Only Sopra Steria and FinecoBank are lower and both are showing less growth in consensus forecasts than Flatex. Its business model seems to be working and its balance sheet remains healthy even after the acquisition. Regulatory approval has been given, we think that management deliverance on the promised and expected acquisition potential will be a likely catalyst over next 12 months.
Exhibit 6: Peer analytics
Currency |
Share price |
Market cap |
Revenue growth |
EBIT margin |
P/E (x) |
EV/EBIT (x) |
|||||||
(curr) |
(€m) |
2020e |
2021e |
2020e |
2021e |
2020e |
2021e |
2020e |
2021e |
||||
FTKG.DE |
Flatex |
€ |
45.7 |
1,237 |
72.9 |
25.6 |
31.9 |
35.0 |
23.7 |
18.3 |
21.5 |
15.6 |
|
AVANZ.ST |
Avanza |
SEK |
189 |
2,817 |
70.6 |
-13.5 |
64.6 |
52.9 |
26.8 |
36.7 |
56.7 |
80.0 |
|
CDBG.DE |
Comdirect |
€ |
14 |
1,954 |
28.4 |
-12.9 |
41.1 |
30.4 |
13.2 |
17.8 |
10.7 |
16.6 |
|
FBK.MI |
FinecoBank |
€ |
12 |
7,435 |
15.4 |
-0.9 |
63.7 |
62.9 |
24.3 |
24.7 |
13.9 |
14.2 |
|
IBKR.K |
Interactive brokers |
US$ |
51 |
17,897 |
6.8 |
-6.9 |
59.7 |
53.3 |
22.1 |
26.0 |
24.8 |
29.8 |
|
SQN.S |
Swissquote |
CHF |
86 |
1,228 |
32.0 |
5.3 |
34.5 |
31.0 |
14.2 |
14.7 |
46.1 |
48.8 |
|
Average B2B* |
|
|
|
25.5 |
-4.8 |
43.9 |
38.4 |
16.8 |
20.0 |
25.4 |
31.6 |
||
CLXN.S |
Crealogix** |
CHF |
120 |
155 |
3.1 |
5.0 |
-1.5 |
2.5 |
-91.2 |
-89.8 |
-98.7 |
56.1 |
|
FRST.L |
First Derivatives |
£ |
3,490 |
1,053 |
-2.9 |
7.9 |
11.9 |
11.7 |
55.1 |
45.4 |
37.5 |
35.2 |
|
GFTG.DE |
GFT |
€ |
12 |
309 |
4.9 |
6.0 |
4.2 |
5.7 |
20.6 |
14.3 |
21.8 |
15.2 |
|
SOPR.PA |
Sopra Steria |
US$ |
140 |
2,853 |
-2.1 |
4.3 |
7.0 |
8.3 |
15.2 |
11.8 |
12.3 |
9.9 |
|
TEMN.S |
Temenos |
US$ |
122 |
8,385 |
-3.7 |
12.9 |
34.5 |
34.3 |
33.7 |
30.6 |
33.6 |
29.9 |
|
Average B2C* |
|
|
|
-0.1 |
7.2 |
11.2 |
12.5 |
31.2 |
25.5 |
26.3 |
22.6 |
||
Source: Refinitiv. Note: *Ex-Flatex. **We have removed Crealogix from the P/E and EV averages. Priced at 9 October 2020.
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Research: Healthcare
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