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AXACTOR A quarter of high NPL investment We forecast Q4 net profit of EUR2.1 (up from EUR0.3 in Q3), driven by continued growth in gross collections and seasonality while the underlying cost base is largely stable (results due at 07:00 CET on 13 February). We expect portfolio acquisitions to total EUR195m given the announced acquisitions in Q4. We expect earnings to pick over the course of 2018 as collections on REOs portfolios start and Axactor achieves economies of scale from its ramp-up of operations. We have trimmed our 2018–2020 estimates by ~2% and reiterate our BUY recommendation and NOK5 target price.
We expect net profit to come up QOQ on seasonality and growth. We estimate gross collections in Q4 of EUR17m (up from ~EUR14m in the previous quarter) due to Q4 being seasonally stronger and payments from a few new portfolios come into force (although this has a limited impact due to low level of acquisitions in Q3). We estimate EBIT of EUR5m, well above Q3’s EUR0.7m. After deducting interest costs and taxes, our net profit estimate is EUR2.1m
High portfolio investments in Q4. Axactor announced several large acquisitions in Q4 with a tilt towards REOs portfolios in Spain. We estimate the total acquisition volume to be EUR195m. We estimate roughly two thirds of Axactor’s exposure is now in Spain. As we have outlined earlier, we believe that such a geographical concentration enables higher synergies and yields scale benefits, while it also increases the single risk towards the macroeconomic situation in Spain. Unemployment in Spain is down to 16% (from its peak of 27%) while house prices appear to have bottomed out and are now up 18% from their lows, according to an index published by The Ministry of Public Works and Transport in Spain.
Small estimate changes. We have trimmed our 2018–2020e EPS by ~2%, having increased our NPL investment estimate for Q4 but reduced our estimate for Q1 as we believe NPL purchases are likely to come in lower. The net effect is ~2% lower EPS for 2018e to 2020e.
BUY recommendation and NOK5 target price reiterated. We find Axactor attractively valued at a 2019e EV/EBIT of 8.4x on our estimates, in combination with high expected earnings growth and a healthy revenue mix with a relatively high share of Debt Collection earnings. We are increasingly confident in our investment case post the equity issue in Q3, as we believe the funding risk is much reduced and in light of Axactor’s ability to attain significant economies of scale and considerably improved synergies