AXACTOR
REOs starting to have an impact
We expect Q1 EBIT of EUR6.4m, up 51% from EUR4.2m in Q4 2017, and a net loss of EUR0.3m, reflecting one-off costs relating to the EUR150m bond issue. We have cut our 2018e EPS by 19%, mainly due to higher interest costs after the bond issue, but raised our 2019e EPS by 1% mainly due to high NPL acquisition activity (we estimate EUR90m) in Q1. We reiterate our BUY with a NOK5 target price, and see improved quarterly earnings through 2018 as Axactor builds scale providing a potential a share price trigger going forward.
Expecting revenues to rise faster than costs. We expect Axactor’s Q1 results to reveal increasing scale effects as revenues rise faster than costs. We forecast a 25% increase QOQ in gross collections to EUR28m, versus a marginal rise in total costs, driving an increase in EBIT from EUR4.2m in Q4 2017 to EUR6.4m, or up 51% QOQ. However, bottom line we expect a EUR0.3m net loss, reflecting transaction costs relating to the EUR150m bond issue in Q1. Axactor has signed four forward flow contracts in the past few months, of which the Komplett Bank contract, with expected annual capex of EUR60m according to Axactor, is the largest. We believe this should help strengthen capex and earnings from unsecured debt in the coming years. For Q1 we forecast total capex of EUR90m, with real estate owned (REO) assets making up the majority, at around EUR50m.
We have raised our 2019e EPS by 1%, driven by higher Q1e capex than we previously assumed, while we have cut our 2018e EPS by 19%, mainly as a result of increased interest costs following the EUR150m bond issue, as we assume it will take time for Axactor to fully utilise the funds. We have increased our gross collection estimates for 2019-2020e by 3-4%, due to an increase in our CAPEX deployment estimate for Q1 2018, in combination with the many forward flow deals that was signed. We have also made small increases in our cost and amortisation assumptions since we assume that a higher share of REOs comes with a corresponding increase in these P&L lines.
BUY recommendation and NOK5 target price reiterated. We find Axactor attractively valued at a 2019e EV/EBIT of 7.2x 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 expect a significant improvement in the quarterly results over the course of 2018 as the platform established in 2016 and 2017 sees higher margins from better utilisation and scale benefits materialise due to high NPL investments.