B2HOLDING A more cautious outlook from here With most of the headline numbers pre-announced, the Q1 results were largely in line with expectations. Investor focus appeared to be on the lack of quarterly gross collections guidance, and the further delay to the Croatian hotel claim. We have lowered our 2020–2021e EPS by ~3% on the back of the company’s updated ERC curves (we continue to apply a 5% discount to its ERC estimates). However, we still find B2Holding attractively valued at a 2020e P/E of 7.3x after applying the discount, and reiterate our BUY and NOK18 target price.
Quarterly guidance removed from presentation material. A year ago B2Holding began giving guidance on quarterly gross collections and amortisation – but then consistently missed that guidance (with struggles on the secured collections in particular). We note the absence of quarterly forecasts for the next 12 months in the Q1 report; while we believe that the company is unlikely to overpromise again, we do see it as a soft indication that it has chosen to stop giving this guidance so soon. Our view of the company’s visibility into collection prospects is also somewhat reduced as the Croatian hotel claims, which had already been moved from Q4 2018 to Q1 2019, and Q2, has now been moved more than a year out in the ERC curves. Another key takeaway from the Q1 results was that unsecured collections appear to still be performing well (positive revaluation of NOK22m), whereas secured lending continues to struggle (NOK20m negative revaluations).
Improved collection cost efficiencies QOQ. While costs overall were ~NOK10m higher QOQ, this was explained by increased collection volumes in Q1 compared to Q4 (~NOK17m), partly offset by collection costs falling from 24% of gross collections in Q4 to 22% in Q1 (NOK7m).
2020–2021e EPS reduced by ~3%; BUY and NOK18 target price reiterated. We continue to view B2Holding as an attractive investment and see ample upside potential from it continuing to build scale, which should boost its earnings materially across a welldiversified platform in the European debt collection market. We note that B2Holding has missed its guided collection estimates in recent quarters, and see a risk that the volatility around the guided figures is skewed towards missing the targets. We have therefore assigned a 5% discount to the company’s stated collection curves. However, we believe B2Holding is attractively priced after taking this discount into consideration at a 2020e P/E of 7.3x, and we reiterate our BUY with a NOK18 target price.