Ferratum — Growth driven by loans with longer maturities

Ferratum — Growth driven by loans with longer maturities

Following the record-high results in FY17 (sales up 44% y-o-y), Ferratum’s revenue growth decelerated in H118 to 20% y-o-y due to lower PlusLoan approval rates following prior credit scoring system adjustments. This triggered a downward revision of FY18 guidance in June. Remedial actions have already been introduced and this business line is showing first signs of a pick-up. Growth in the Credit Limit segment remains robust, while the company continues to develop the SME and Prime Loans products to increase their contribution to group results.

Milosz Papst

Written by

Milosz Papst

Director, Financials

Ferratum

Financials

Price

€11.74

Market cap

€255m

Share price graph

Share details

Code

FRU

Shares in issue

21.7m

Net debt (€m) as at 30 June 2018

203.4

Business description

Ferratum Oyj provides mobile banking, digital consumer and small business loans. It operates in Finland, Europe, North America, South America, Africa and the Asia-Pacific region. The company was founded in 2005 and is headquartered in Helsinki, Finland. Ferratum has approximately two million active and former customers who have an account or have been granted one or more loans in the past.

Bull

Rapid revenue growth supported by new products and geographic expansion.

European banking licence enabling activity across EEA countries.

Low entry barriers to new markets.

Bear

Credit scoring model requiring adjustments.

Highly competitive market.

Geographic expansion beyond Europe more difficult.

Analyst

Milosz Papst

+44 (0)20 3077 5700

Growth driven by loans with longer maturities

Following the record-high results in FY17 (sales up 44% y-o-y), Ferratum’s revenue growth decelerated in H118 to 20% y-o-y due to lower PlusLoan approval rates following prior credit scoring system adjustments. This triggered a downward revision of FY18 guidance in June. Remedial actions have already been introduced and this business line is showing first signs of a pick-up. Growth in the Credit Limit segment remains robust, while the company continues to develop the SME and Prime Loans products to increase their contribution to group results.

Guidance revised as revenue growth decelerates

The sequential increase in revenues, which exceeded 5% in each quarter in 2017, dropped to around 2% in H118. As a result, the original revenue guidance of €280–310m has been revised down to €260–280m as total revenue in H118 amounted to €124.2m. This still constitutes a c 20% y-o-y improvement but is below the 33% required to reach the midpoint of the original guidance. EBIT margin improved slightly y-o-y to reach 14.6% in H118 (FY17: 14.4%), comfortably within the guided range of 13–16%. As the company successfully placed €100m senior unsecured bonds in May 2018 (refinancing €45m of existing debt and raising an additional €55m for further growth), net profit (down 17% y-o-y to €8.3m) has been influenced by an increased interest burden.

Strategic shift towards longer-term lending

Ferratum continues to prioritise longer-term lending products, which is reflected in the company’s portfolio as the share of microloans in total revenue was reduced from 28% to 16% over the last two years. Meanwhile, the company’s flagship Credit Limit product is nearing 50% group share, as its quarterly sales broke the €30m mark in Q218. Management plans further actions aimed at enhancing business efficiency, including automation of lending processes and a review of all geographies with potential withdrawal from one or two countries.

Valuation: Trading at a discount to peers in FY19e

Following an over 50% decline YTD to €11.74, Ferratum’s shares are trading at a P/E FY18e ratio of 11.9x (based on Bloomberg consensus), implying a 12.8% premium to peers, including MyBucks, Capitec Bank Holdings, Atlas Mara, On Deck Capital and Letshego Holdings. The premium changes to a 23.2% and 18.9% discount on FY19e and FY20e figures, respectively. On EV/sales FY18e ratios, the company’s shares trade at 38.5% discount, which increases to 45.6% by FY20.

Consensus estimates

Year
end

Revenue
(€m)

EBITDA
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/17

221.6

34.6

0.92

0.18

12.8

1.5

12/18e

268.5

42.7

0.99

0.20

11.9

1.7

12/19e

332.5

55.1

1.55

0.31

7.6

2.6

12/20e

412.5

71.7

2.08

0.42

5.6

3.6

Source: Ferratum accounts and Bloomberg consensus (at 9 October 2018)

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are "wholesale clients" for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is intended only as a "class service" provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2014]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Frankfurt +49 (0)69 78 8076 960

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Germany

London +44 (0)20 3077 5700

280 High Holborn

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United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Expedeon — Organic growth boosted by acquisitions

Expedeon (formerly Sygnis) is a rapidly growing life science reagents business: H1 sales grew 89% to €5.6m. Growth was boosted by several recent acquisitions. It operates across Europe, the US and Australia largely selling consumable laboratory products. Expedeon also aims to build group sales by better promotion and distribution. Financially, the business is gaining strength with an H118 €23k positive EBITDA, although depreciation gave an overall EBT H1 loss of €1.1m, reduced from a €2.2m loss in H117. Operating H1 cash flow improved from €1.6m to €0.7m.

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