B2HOLDING Building scale We expect Q1 EPS of NOK0.38, impacted by 39% growth YOY in gross collections and a 19% YOY increase in costs. During Q1, B2 Holding has issued 37m new shares and deployed capex worth NOK1,485m. Gross collections were pre-announced to be NOK775m in Q1. After incorporating the new share count after the equity issue and increasing the assumed level of amortisations, we maintain our 2019– 2020e EPS. We also reiterate our BUY and NOK24 target price.
Refinancing set to reduce funding costs from 2019e. After the closing of the quarter, B2 Holding announced that a refinancing agreement is in place. We expect the EUR510m revolving credit facility to help reduce the financing costs for 2019e and beyond, when its two bonds can be called. B2 Holding reports that it has NOK2.2bn available for investments at end-Q1. We estimate its equity ratio to top out at 28% at the end of Q4 2018, after having deployed another NOK4.2bn in capex from Q2 to Q4 2018.
Entering the Portuguese market. In the beginning of May, B2 Holding announced that it had acquired GI Capital Solutions S.A., a third-party collection company with eight employees located in Lisbon, Portugal. B2 Holding has also been assigned with a Ba3 rating with a stable outlook from Moody’s.
2019–2020e EPS unchanged. We have lifted our gross collections assumptions following the high capex deployment in Q1 and the NOK~700m equity issue, which strengthens the acquisition capacity going forward. We have also increased our amortisation assumptions and lifted other revenues somewhat. The net effect is a 0% change in EPS for 2019–2020e.
BUY and NOK24 target price reiterated – ROE set to surpass 20% in 2018e. We expect B2 Holding’s ROE to rise from c17% in 2017 to 22% in 2018, driven by operational leverage, higher gearing, and declining collection costs due to scale benefits. We also expect management to deliver on its guided NOK4bn+ annual NPL capex deployment, lifting leverage from an average of c60% in 2017 to around +70% in 2018e (~30% equity ratio). At an ROE of 22% in 2018e, the stock is trading at an unwarranted discount to the high end of the debt collection peer group, in our view, justifying the 20% potential upside to our NOK24 target price. With valuation support and a strong footprint in the developing markets, we continue to see the stock as attractively valued at a 2019e EV/EBIT of 10.1x.