Fellow Finance - Initiating coverage with HOLD
Seeking rapid and profitable growth
Fellow Finance is a P2P consumer and business lending platform aiming at rapid organic and profitable growth domestically and internationally. The company has during its rather short existence been able to achieve solid growth while retaining good profitability. The financial targets by the end of 2023 are net sales of over EUR 80m, an EBIT-margin of over 25 per cent, annual loan facilitations of EUR 1.5 billion, and to facilitate loans in ten countries in Europe. The alternative financing market generally still accounts for only a small share of total lending but companies like Fellow Finance are seeking to challenge the traditional financial markets through innovation and technology.
Business model relies on highly scalable platform
Fellow Finance’s business model relies on its self-developed platform, which enables high scalability. The platform further enables expansion into new markets and launching of new products with little investment. Fellow Finance’s subsidiary Lainaamo functions as a financing company and acts as a market maker when entering new markets.
Initiate coverage with HOLD and target price of EUR 8.0
We initiate coverage of Fellow Finance with a HOLD rating and target price of EUR 8.0. Our valuation is based mainly on payment processing and financing platform peer multiples, emphasizing 2019E P/E ratios. Our target 2019E P/E of 21.9x values Fellow Finance above the lending platform peers, that on average have a lower expected growth rate and profitability. The internationalization plans offer significant upside but in our view Fellow Finance still needs to show proof of international success.