AXACTOR
Scale effects set to kick in
Axactor reported Q1 results somewhat softer than we
and the market had anticipated. While EBIT of EUR4.8m
missed our estimate of EUR6.4m, the growth in gross
collections from REOs showed a significant uptick from
EUR2.0m in the previous quarter to EUR8.7m in Q1. As
the ERC has nearly doubled in the past six months, we
expect considerable growth in collections and increased
scale benefits going forward. We have reduced our
2019–2020 EPS estimates by 7%, mainly as a result of
higher amortisation assumptions from a higher share of
REOs. We maintain our BUY and NOK5 target price.
Scalable platform set for high revenue growth. We expect high revenue growth
through 2018 as the near-doubling of ERC from EUR526m in Q3 2017 to EUR1,001m in
Q1 is starting to boost the revenue line considerably. At the same time, we expect
Axactor’s scalable platform to see smaller increases in the activity-based costs, while
most of the cost base is already in place. As an illustration of this impact, the operating
cash flow doubled from EUR4.9m in Q3 to EUR9.9m in Q4, and more than doubled again
to EUR21.4m in Q4. We expect gross collections of cEUR246m in the coming four
quarters, where EUR200m (of which EUR100m is REOs) stems from already-acquired
portfolios, while the remaining EUR46m stems from new acquisitions, as we have
assumed that another NOK330m of capex is deployed until the end of the year.
2019–2020e EPS reduced by 7% as we have increased our amortisation assumptions
on the back of the updated collection curves, reflecting a relatively higher share of
REOs. 2019-2020e Cash EBITDA is increased by 2-4% due to higher gross collections
than previously assumed. We have also factored in the somewhat more front-endloaded
cost charge relating to REOs in the first year, partly due to high maintenance
costs for unsold properties, which we expect will abate as more units are sold.
BUY recommendation and NOK5 target price reiterated. While we have reduced our
2019–2020 EPS estimates by 7%, we find the risk in the equity case to have been
reduced somewhat as the Q4 and Q1 results show a solid trend in the REOs market
(due to it being a new and relatively unknown market segment and thus a source of
potential uncertainty for investors). We find Axactor attractively valued at a 2019e
EV/EBIT of 7.0x 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.