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 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.
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.
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.
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’.
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.