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Research: Financials
FY18 was a strong year for FinTech Group (FTG) with healthy 17% growth in revenues and expansion in margins. In recent weeks flatex has launched successfully in the Netherlands, with the entry cost considerably lower than expected. Consequently, management upgraded EBITDA guidance in May. Management believes it has all the components for growth (notably, the brokerage platform & banking licence) and has hired an investment bank to review various strategic options. Given the growth potential, we believe the shares remain attractive on c 16x consensus FY20 earnings.
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FinTech Group |
Strategic review
Financial services |
Scale research report - Update
11 July 2019 |
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FY18 was a strong year for FinTech Group (FTG) with healthy 17% growth in revenues and expansion in margins. In recent weeks flatex has launched successfully in the Netherlands, with the entry cost considerably lower than expected. Consequently, management upgraded EBITDA guidance in May. Management believes it has all the components for growth (notably, the brokerage platform & banking licence) and has hired an investment bank to review various strategic options. Given the growth potential, we believe the shares remain attractive on c 16x consensus FY20 earnings.
FY18 annual report
FY18 revenues grew by 17% to €125.1m, while EBITDA lifted by 32% to €42.4m. This was driven by an 11% increase in transactions, along with onboarding new B2C customers. The new Goldman Sachs partnership has progressed well, and the bank will become flatex’s platinum partner in Germany from November.
International expansion
In June, FTG launched flatex in the Netherlands. The model includes zero fees and flatex generates revenues via a cut from its product and exchange partners. Product partners in the Netherlands are Goldman, BNP and Vontobel. FTG intends to launch its brokerage in other eurozone countries over the next 18 months.
May trading update
flatex added more than14.5k customers in the first five months of FY19 and transactions were expected to reach record levels in Q2, despite subdued volatility. The FY19 EBITDA margin target was raised from 27% to 29% due to significantly lower than anticipated investment and marketing costs in the Netherlands.
Strategic review
In early July, FTG announced that it has appointed Lazard ‘to investigate the group’s strategic options regarding the future orientation of the company in order to be able to optimally make use of the significant growth opportunities. Such evaluation will include potential strategic partnerships, a potential sale (wholly or partially) of the company and obtaining potential new investors’.
Valuation: Attractive relative to peer group
The shares trade on 15.6x FY20e consensus earnings. We believe this looks attractive relative to the peer group (see Exhibit 5) given FTG’s favourable growth profile along with improving margins.
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Consensus estimates
Source: Company data, 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.
FY18 results
FY18 revenues rose by 17% to €125.1m, while EBITDA jumped by 32% to €42.4m. The number of transactions increased by 11% to 12.5m in FY18, reflecting a 14% increase in the number of clients and a slight decline in transactions per customer. The current top seven product partners are: Morgan Stanley (platinum), Deutsche, Goldman Sachs and UBS (gold); and BNP Paribas, HSBC and Vontobel (silver). The Goldman Sachs partnership has been successful and from November it will replace Morgan Stanley as the new platinum partner, with zero fees for traders. Traders pay €1.90 for products from gold partners and €3.90 from silver partners.
FTG launched flatex in the Netherlands in June, and the process was carried out so efficiently that management was able to increase EBITDA guidance by 200bp in May. The Netherlands model includes zero fees for traders and flatex generates revenues via a cut from its product and exchange partners. flatex’s product partners in the Netherlands are Goldman, BNP and Vontobel. FTG intends to launch the brokerage in other eurozone countries over the next 18 months. It plans to drive this growth primarily organically.
The proposed name change to flatex will be put forward at the AGM on 12 August, while the uplisting to Prime Standard has been put on hold due to the strategic review. The company continues to pay no dividend, with the focus on investing for growth
Exhibit 1: Key performance indicators
FY12 |
FY13 |
FY14 |
FY15 |
FY16 |
FY17 |
FY18 |
|
Transactions executed (000's) |
6,625 |
5,487 |
6,023 |
10,143 |
10,462 |
11,272 |
12,483 |
Number of retail customers (000's) |
118.2 |
126.1 |
134.4 |
176.6 |
212.0 |
253.8 |
290.3 |
Transactions per customer per year |
56.07 |
43.51 |
44.81 |
57.44 |
49.34 |
44.41 |
43.00 |
Customer assets under management (€m) |
2,810 |
3,527 |
4,043 |
5,770 |
10,855 |
11,794 |
10,995 |
of which: securities account volume |
2,272 |
2,795 |
3,236 |
4,784 |
9,512 |
10,910 |
10,000 |
of which: deposits account volume |
538 |
732 |
807 |
986 |
1,343 |
884 |
995 |
Source: Company accounts
Commission income grew at 10%, which was roughly in line with the number of transactions. Provision of IT services rose by 15%, reflecting the onboarding of new B2B contracts, and interest income increased by 13%, reflecting the growth in the collateralised loan book. The jump in ‘Other operating income’ reflected c €6m of factoring revenue.
Exhibit 2: Revenue by type
2016 |
2017 |
2018 |
FY18/FY17 change (%) |
|
Commission income |
64,031 |
77,488 |
84,861 |
9.5 |
Provision of IT services |
15,583 |
16,006 |
18,462 |
15.3 |
Interest income |
7,799 |
10,352 |
11,733 |
13.3 |
Other operating income |
7,608 |
3,168 |
10,044 |
217.0 |
Total |
95,021 |
107,014 |
125,100 |
16.9 |
Source: Company accounts
Both segments – FIN (financial services) and TECH (technology) produced strong growth in FY18. In FY17, the expenses in the holding structure was allocated to ‘Other’ category but, following the completion of the ‘From 5 to 2’ strategy, these costs are now allocated to the two segments, and hence the EBITDA of the ‘Other’ category is zero in FY18.
Exhibit 3: FY18 y-o-y analysis
2017 |
2018 |
|||||||
FIN |
TECH |
Other |
Total |
FIN |
TECH |
Other |
Total |
|
Revenues |
89,113 |
30,642 |
(12,742) |
107,013 |
107,140 |
39,730 |
(21,770) |
125,100 |
Raw materials and consumables used |
(28,688) |
(3,937) |
1,640 |
(30,985) |
(44,517) |
(5,462) |
13,132 |
(36,847) |
Personnel expenses |
(15,353) |
(2,702) |
(5,088) |
(23,143) |
(17,274) |
(9,470) |
4,830 |
(21,914) |
Other administrative expenses |
(25,206) |
(3,050) |
7,445 |
(20,811) |
(17,001) |
(10,779) |
3,808 |
(23,972) |
EBITDA |
19,866 |
20,952 |
(8,744) |
32,075 |
28,348 |
14,018 |
0 |
42,368 |
Margins |
22.3% |
68.4% |
30.0% |
26.5% |
35.3% |
33.9% |
||
Depreciation and amortization |
(5,590) |
(8,180) |
||||||
EBIT |
26,484 |
34,188 |
||||||
Financial results |
(1,288) |
(2,179) |
||||||
EBT |
25,196 |
32,010 |
||||||
Income tax expense |
(8,179) |
(10,965) |
||||||
Earnings from continuing activities |
17,017 |
21,044 |
||||||
Earnings from discontinued operations |
(220) |
0 |
||||||
Consolidated net profit |
16,797 |
21,044 |
||||||
Source: Company accounts
Cash flow and year-end cash and equivalents are subject to volatility due to the group’s banking activities. Excluding banking operations, cash flow from operations was €17.5m. The FY18 financing inflow includes the c €35m share placement with Austrian Post and the equity position rose by 48% to €167.2m, to represent 13.6% of total assets, up from 10.2% in FY17.
Exhibit 4: Financial summary
Year ended 31 December |
FY14 |
FY15 |
FY16 |
FY17 |
FY18 |
€000s |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
INCOME STATEMENT |
|||||
Revenue |
17,140 |
75,024 |
95,021 |
107,014 |
125,100 |
EBITDA |
3,624 |
19,738 |
30,624 |
32,073 |
42,368 |
EBITDA margin |
21.1% |
26.3% |
32.2% |
30.0% |
33.9% |
EBIT |
3,220 |
17,239 |
25,465 |
26,484 |
34,188 |
EPS from continuing operations |
(0.58) |
0.86 |
1.21 |
1.01 |
1.12 |
EPS from discontinued operations |
0.00 |
(0.99) |
(0.47) |
(0.01) |
(0.01) |
DPS |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
BALANCE SHEET |
|||||
Total non-current assets |
9,354 |
64,999 |
78,889 |
97,373 |
132,493 |
Total current assets |
85,927 |
1,142,067 |
1,454,647 |
1,009,677 |
1,095,245 |
Assets from discontinued operations |
0 |
1,174 |
459 |
383 |
0 |
Total assets |
95,281 |
1,208,240 |
1,533,995 |
1,107,433 |
1,227,738 |
Total non-current liabilities |
(36) |
(16,324) |
(14,808) |
(29,392) |
(30,395) |
Total current liabilities |
(45,163) |
(1,106,059) |
(1,428,557) |
(965,317) |
(1,030,118) |
Total liabilities |
(45,199) |
(1,122,383) |
(1,443,365) |
(994,709) |
(1,060,513) |
Net Assets |
50,082 |
85,857 |
90,630 |
112,724 |
167,225 |
CASH FLOW |
|||||
Cash flow from operations |
23,240 |
(58,705) |
(143,956) |
112 |
253,641 |
Cash flow from investments |
(331) |
(47,237) |
(9,192) |
(12,587) |
(27,756) |
Cash flow from financing |
21,838 |
26,296 |
1,078 |
20,273 |
32,160 |
Net Cash Flow |
44,747 |
(79,646) |
(152,070) |
7,799 |
258,045 |
Cash & cash equivalent end of year |
61,482 |
541,273 |
389,202 |
397,002 |
655,047 |
Source: Company accounts
Valuation: Attractive relative to peer group
The shares trade on 15.6x FY20e consensus earnings, which looks attractive relative to peers. In December 2018, Saxo Bank of Denmark announced it was acquiring BinckBank of Belgium for c €424m, reflecting a 35% premium. We estimate that this translates into a FY20 P/E of c 16.5x. We note that BinckBank’s growth rate and margins are both significantly lower than FTG’s, while its business model potentially carries more risk given BinckBank’s large credit exposure to non-brokerage credit business.
Exhibit 5: Peer analysis
Share price |
Market cap |
Currency |
Revenue |
Operating profit |
Operating margin |
PE (x) |
||||||
local curr |
local curr |
Year 1 |
Year 2 |
Growth |
Year 1 |
Year 2 |
Year 1 |
Year 2 |
Year 1 |
Year 2 |
||
FinTech Group |
22.35 |
437 |
EUR |
143.1 |
158.5 |
10.8% |
33.9 |
42.2 |
23.7% |
26.6% |
21.1 |
15.6 |
Global B2C peers |
||||||||||||
Avanza |
78.5 |
11,897 |
SEK |
1150.9 |
1299.6 |
12.9% |
473.0 |
566.0 |
41.1% |
43.6% |
28.3 |
24.2 |
Comdirect |
9.34 |
1,320 |
EUR |
347.2 |
370.1 |
6.6% |
63.8 |
82.7 |
18.4% |
22.4% |
9.9 |
20.3 |
Etrade |
45.3 |
11,084 |
USD |
3000.9 |
3009.2 |
0.3% |
1479.2 |
1470.0 |
49.3% |
48.9% |
10.5 |
10.4 |
FinecoBank |
10.11 |
6,161 |
EUR |
663.3 |
712.9 |
7.5% |
405.6 |
445.3 |
61.2% |
62.5% |
23.2 |
20.6 |
Interactive Brokers |
53.74 |
22,237 |
USD |
1957.6 |
2084.1 |
6.5% |
1221.6 |
1236.6 |
62.4% |
59.3% |
23.0 |
21.7 |
Swissquote |
40.76 |
625 |
CHF |
235.8 |
255.3 |
8.3% |
153.2 |
166.0 |
65.0% |
65.0% |
15.4 |
12.9 |
Averages excl FinTech Group |
7.0% |
49.5% |
50.3% |
15.6 |
16.7 |
|||||||
European B2B peers |
||||||||||||
CREALOGIX |
97.8 |
137 |
CHF |
107.3 |
115.4 |
7.5% |
-1.0 |
3.0 |
(0.9%) |
2.6% |
58.6 |
23.5 |
First Derivatives |
2880 |
767 |
GBP |
245.7 |
275.6 |
12.2% |
31.7 |
36.3 |
12.9% |
13.2% |
32.4 |
28.9 |
GFT |
7.55 |
199 |
EUR |
421.0 |
435.8 |
3.5% |
21.8 |
26.6 |
5.2% |
6.1% |
13.0 |
10.4 |
Gresham Technologies |
115.5 |
79 |
GBP |
24.8 |
26.1 |
5.0% |
1.1 |
1.7 |
4.4% |
6.5% |
77.7 |
49.7 |
Temenos |
174.45 |
12,656 |
CHF |
989.1 |
1111.9 |
12.4% |
295.8 |
351.8 |
29.9% |
31.6% |
50.6 |
43.1 |
Averages excl FinTech Group |
8.1% |
10.3% |
12.0% |
31.7 |
23.1 |
|||||||
Source: Refinitiv. Note: Priced as at 9 July 2019.
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Research: Metals & Mining
Our updated sum-of-the-parts (SOTP) valuation of Gemfields is ZAR4.91 per share before taking into account the planned buyback of up to 10% of the issued share capital. If the buyback was fully executed at the current share price of ZAR1.65/share, the SOTP would increase to ZAR5.31/share. Gemfields’ agreed sale of its stake in Jupiter for A$44.24m (US$30.5m) funds a planned return of capital to shareholders totalling US$24.68m, split between the share buyback and a subsequent special dividend. On the back of total H1 auction sales from Kagem and Montepuez Ruby Mining (MRM) of US$83.2m, we have adjusted our full-year auction sale forecast down to US$180.4m (from US$193.7m previously).