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Fellow Finance - Growth pick-up taking time

Fellow Finance’s H1 saw a weaker loan volume development, largely due to an increased competition within domestic consumer loans. Larger investments into international growth are expected to be seen in 2020, with some upfront investments to show in 2019, and we expect to see weaker margins but a more rapid growth going into 2020. We retain our HOLD-rating with a TP of EUR 5.0 (5.5)

Increased competition affecting domestic consumer loans

Fellow Finance’s H1/19 figures in general were quite as expected, with revenue at EUR 7.2m (Evli EUR 7.0m) and the adj. EBIT at EUR 1.4m (Evli EUR 1.3m). Profitability was affected by the bond issue and upfront growth investments. Overall facilitated loan volumes were below expectations, with consumer loans in Finland showing a weaker development due to an increase in competition from other lenders.

Expect more aggressive growth moves in 2020

Based on management comments we expect 2019 to remain a ramp-up year for the international operations, building up a foundation for accelerating growth. We had expected some more aggressive moves already in 2019 but now expect to see this happening in 2020. As such we have lowered our profitability estimates for 2020 due to expected increases in marketing investments while increasing our coming year growth estimates. Following recent recruitments, we expect to see larger moves in Poland in the near term, followed by Germany.

HOLD with a TP of EUR 5.0 (5.5)

We view Fellow Finance at an elevated level of uncertainty following the lowered guidance pre-H1 and the weaker the expected loan volume development. We consider the indicated stronger growth investments towards 2020 a positive, as the weaker loan volume development has mostly been due to domestic consumer loan development, contrary to domestic business financing and international financing, were we have expected the bulk of coming years’ growth. Due to estimates revisions we lower our TP to EUR 5.0 (5.5), retaining our HOLD-rating.

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