Fellow Finance - Upgrade to BUY

Revenue grew 38.2% and adj. EBIT 41.7% in 2018

Fellow Finance’s H2 revenue and EBIT amounted to EUR 6.4m (Evli 6.7m) and EUR 1.7m (Evli 1.7m) respectively. Full year revenue growth amounted to 38.2% and fee income growth to 50.1%. Fellow Finance estimates revenue in 2019 to grow over 30% and the adjusted operating profit (2018: EUR 3.5m) to grow compared to 2018. Focus in 2019 will be on continuing the expansion in Europe and broadening the product offering to investors. Fellow Finance expanded its services to Denmark during early 2019. In absolute terms growth in 2018 still derived mainly from Finland but growth was also solid in particular in Germany, were the company’s services only kicked off properly in the latter half of 2018. Growth in business financing has also been good, with the relative share of loan volume at 27%.

Expect continued solid growth and margins

We have made only slight adjustments to our near-term estimates. We expect sales of EUR 16.5m in 2019, with growth of 38%, and adjusted EBIT of EUR 4.5m. We expect relative profitability to be slightly below 2018 levels driven by rapid expansion of services to new markets and ramp-up of existing ones but above the long-term strategic goal of 25%.

BUY (HOLD) with a TP of EUR 9.0 (8.0)

On 2019E figures valuation appears challenging but with signs of pick-up in international operations and a good outlook for business financing we are prepared to emphasize 2020E peer multiples. We value Fellow Finance at 16.4x 2020E P/E, closer to the payment processing and financing platform peers, for a target price of EUR 9.0 (8.0) and upgrade to BUY (HOLD).