Fellow Bank |

Digital bank focused on own balance sheet lending
Banks | Finland

Fellow Bank - Decent start to banking operations

26.08.2022 | Company update

Fellow Bank’s H1 figures were weak due to ECL changes driven by the loan book growth and non-recurring items but operatively decent. Additional capital (T2) is sought to support growth. Early growth figures look promising and profitability scaling potential remains, albeit at a slower pace than we previously expected.

Weak H1 earnings but operatively decent figures
Fellow Bank reported H1 results which operatively were slightly better than we estimated but the change in expected credit losses due to the loan book growth clearly exceeded our expectations and as such the profitability was below expectations (PTP act./Evli EUR -7.4m/-2.3m). Realized credit losses were on a moderate level (EUR 0.7m). Total income of EUR 2.4m (Evli EUR 2.8m) was skewed by the old P2P loans while NII of EUR 2.5m exceeded our expectations (Evli EUR 2.0m). Total OPEX excl. non-recurring items was quite in line with our expectations. After starting the banking operations, Fellow Bank’s business lending and consumer lending volumes increased by 49% and 35% respectively compared with the beginning of the year, supported by competitiveness of the new operating model.

Additional capital needed to support loan book growth
Fellow Bank estimates that the loss in H2 will be clearly smaller than in H1. Potential for positive monthly profit levels during H1/23 is seen, assuming a loan portfolio of around EUR 180m and the bank’s estimated cost level and lending interest margin. The total capital ratio was at 19.4% and the need for additional capital to continue growth kicked in sooner than we anticipated due to the H1 losses. Fellow Bank announced actions aiming at the issue of a Tier 2 debenture in the early autumn.

HOLD with a target price of EUR 0.42
Apart from the clear difference to our estimates in the non-cash ECL changes and the faster than anticipated need for additional capital, performance was quite as expected, and growth figures look promising. Profitability scaling due to growth ambitions appears slightly slower than we previously anticipated but intact. We retain our HOLD-rating and TP of EUR 0.42.

Fellow Bank - Operations launch burdened figures

25.08.2022 | Earnings Flash

Fellow Bank started its banking operations in April and financial figures were accordingly burdened. Lending volumes showed positive signs aided by the new, more competitive business model. Fellow Bank started actions to strengthen the capital adequacy to support growth after the reporting period.

  • Total income during H1/22 amounted to EUR 2.3m (Evli EUR 2.8m). Net interest income amounted to EUR 2.5m (Evli EUR 2.0m) and net fee and commission income to EUR 0.0m (Evli EUR 0.8m). 
  • After starting the banking operations, business lending and consumer lending volumes increased by 49% and 35% respectively compared with the beginning of the year
  • The loan portfolio at the end H1 amounted to EUR 114.5m and the deposit portfolio was EUR 223.4m.
  • The pre-tax profit during H1 amounted to EUR -7.4m (Evli EUR -2.3m). The difference compared with our estimates was mainly due to a larger than estimated ECL change due to growth in the loan book, total OPEX also slightly above our estimates at EUR 5.6m (Evli EUR 5.1m). Profitability was burdened by non-recurring costs relating to the launch of banking growth investments
  • Earnings per share amounted to EUR -0.1 compared with our estimate of EUR -0.02.
  • CET1 and the CET1 ratio amounted to EUR 19.6m and 19.4%. After the reporting period, Fellow Bank started actions aiming at the issue of a Tier 2 debenture in the early autumn.
  • The cost / income ratio amounted to 235%.

Fellow Bank - Initiate coverage with HOLD

07.06.2022 | Company report

Fellow Bank is through its new operating model in a better position to accelerate growth and compete in new customer sub-segments. 2022 will be heavily affected by the transition but will set a foundation for clear growth and profitability improvements. We initiate coverage of Fellow Bank with a HOLD-rating and TP of EUR 0.42.

Digital bank focused on own balance sheet lending
Fellow Bank is a digital bank providing lending and banking and financial services to individuals and SME’s and offering savers a return on their deposits. Through a recent merger, the company is shifting towards lending from its own balance sheet, having been established as an international marketplace lending platform. The new operating model and cheaper form of funding in our view offers additional growth potential and improves the company’s competitiveness, which opens up potential to target new customer sub-segments.

Seeking over 25% annual growth of loan portfolio
The company’s financial targets for 2022-2026 are: annual growth of more than 25% of the loan portfolio, a return on equity of more than 15% by the end of the target period and a capital adequacy ratio of at least 18% (T1). 2022 will be a tougher year financially due to exceptional costs relating to the merger and the build up the company’s loan book. We expect the company’s financials to turn on a clearly more favourable path in 2023 with the buildup of the loan book and further new growth. We expect profitability to pick-up during 2023-2024 with the growth and scalability of the operating model and expect the ROE to improve to 13.2% by 2024.

HOLD-rating with a target price of EUR 0.42
We initiate coverage of Fellow Bank with a target price of EUR 0.42 and HOLD-rating. Valuation is currently rather stretched when comparing with peers. Fellow Bank is however still in the early stages of its planned growth phase and the near-term potential for rapid growth in our view presents a justifiable reason to stay along for the early stages of the company’s growth story.

HubSpot Video

Fellow Bank - video interview with CEO Teemu Nyholm

07.06.2022

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HubSpot Video

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Company Facts

Guidance

Loan portfolio expected to reach over EUR 150m in 2022, result estimated to be clearly negative

Financial targets

Financial targets 2022-2026: annual loan portfolio growth >25%, return on equity > 15% by end of period and capital adequacy ratio of at least 18% (T1).

Share price (EUR)


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