AXACTOR Growing into Finland The Q3 results reflected an underlying improvement from significant growth in NPLs and REO stock, but were hampered the Q3 seasonal downturn. Net profit of EUR0.4m was largely in line with expectations. Following the significant expansion in operations, we expect Q4 to be the first quarter to show a considerable improvement in net profit after several quarters of a bottom line close to zero. We have made marginal changes to our 2019–2020e EPS, and reiterate our BUY and NOK50 target price.
Following its customers into Finland. We believe Axactor’s entry into the Finnish market through its proposed] acquisition of SPT and the Finnish Bank Norwegian portfolio makes strategic sense. The Finnish consumer debt and NPL market is known to share many of the Norwegian and Swedish markets’ characteristics, with relatively strong creditor protection, effective and automatised collection processes with a relatively low cost of collection, and exposure to the Nordic economies. Based on the age of the claims, we estimate that Axactor has paid above EUR100m for the Bank Norwegian portfolio. The acquisition of SPT was carried out for a total consideration of EUR2.5m (of which 50% was cash and 50% in Axactor shares).
Q3 largely in line with expectations and the guidance, with net profit of EUR0.4m (we expected EUR0.6m). The NPL collection performance was ~5% better than what the ERC curves have reflected, while the REO portfolio outperformed by 42%.
Contracted capex of EUR180m–200m in 2019e. Axactor should have purchasing capacity of EUR280m at the end of Q4e, all else equal after the acquisition of the Bank Norwegian portfolio. Furthermore, we estimate that the cash flow generated in 2019 should free up a similar amount of purchasing capacity.
BUY and NOK50 target price reiterated. We have made housekeeping estimate changes following the Q3 results, and have reduced our 2019–2020e by 3%. We forecast Q4 net profit of EUR6m. We find Axactor attractively valued at a 2020e EV/EBIT of ~8.0x, in combination with our expectation of strong earnings growth and healthy revenue mix with a relatively high share of Debt Collection earnings. We expect a significant bottom-line improvement, as the ERC of EUR1.1bn has more than doubled over the past year, driving higher revenues, while costs are relatively unchanged. We also expect significantly better quarterly results in 2019, as the platform established in recent years sees delivers higher margins from better utilisation, and economies of scale materialise due to high NPL investments