Fellow Finance |

International marketplace lending platform

| Finland

Financial overview

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Fellow Finance - New phase of journey to start soon

24.02.2022 | Company update

Fellow Finance’s H2 result fell short of our estimates due to larger than anticipated merger related expenses declines in interest income. Fellow Finance will soon enter a new phase, with the merger anticipated to be carried out on April 2nd.

H2 burdened by merger related non-recurring items
Fellow Finance’s H2 results fell short of our estimates, as interest income declined more than expected, causing a slight y/y revenue decline to EUR 5.2m (Evli EUR 5.8m). Fee income grew some 35% on a 59% increase in brokered financing. EBIT amounted to EUR -1.4m (Evli EUR -0.5m), with non-recurring items relating to the intended merger larger than expected along with an increase in personnel expenses. Fellow Finance’s BoD proposed that no dividend be distributed, and the company gave no guidance due to the merger.

Still sub-par but showing promising signs
In its current form Fellow Finance as a company is showing quite notable signs of improvement. The growth in brokered financing during 2021 is now also starting to show as revenue growth and the anticipated lower levels of interest income are to a larger extent offset by a decline in impairment losses and interest income from external debt, reducing the impact on profitability. We have still substantially lowered our estimates for 2022, anticipating some further non-recurring expenses and the increase in personnel expenses along with the lower interest income levels to impact on profitability. Fellow Finance anticipates formalizing the merger with the company carrying on Evli Bank’s banking operations on April 2nd, 2022. We continue to see the transaction in favourable light due to the potential in profitability gains from moving towards balance sheet lending.

BUY with a target price of EUR 3.3 (3.5)
Fellow Finance’s current valuation level is challenging and relies upon the potential benefits from the merger. The implied current valuation of Fellow Bank of near EUR 50m would indicate a P/B of below 1.5x. We lower our target price to EUR 3.3 (3.5) and retain our BUY-rating

Fellow Finance - Profitability burdened by one-offs

23.02.2022 | Earnings Flash

Fellow Finance’s H2/21 results fell short from our estimates. Revenue declined slightly to EUR 5.2m (Evli EUR 5.8m) despite a 59% increase in brokered financing, as interest income decreased clearly. EBIT amounted to EUR -1.4m (Evli EUR -0.5m), impacted by the one-offs relating to the intended merger and increase in personnel expenses.

  • Revenue in H2 amounted to EUR 5.2m (EUR 5.3m in H2/20), below our estimates (Evli EUR 5.8m). Revenue declined 1.4% y/y. The amount of brokered financing during H2/21 grew 59% y/y while fee income grew 35%. Interest income decreased clearly more than expected to EUR 1.2m (H2/20: EUR 2.3m) vs. our expectation of EUR 2.1m.
  • Fellow Finance facilitated loans during H2 for a total of EUR 142.3m (EUR 84.3m in H2/20), growing 59%. Loan volumes continued on a good growth track also in H2, as seen throughout 2021, with volumes passing the EUR 20m mark on a monthly basis during the last months of 2021.
  • The EBIT in H2 amounted to EUR -1.4m (EUR 0.8m in H2/20), below our estimates (Evli EUR -0.5m). Profitability was burdened by one-off expenses relating to the intended merger and a growth in personnel expenses. Without the non-recurring items, the result for 2021 would have been slightly positive.
  • The EPS in H2 amounted to EUR -0.23 per share (EUR 0.02 in H2/20), below our estimate of EUR -0.12.
  • Dividend proposal: The BoD proposes that no dividends be paid for FY2021 (Evli EUR 0.0).
  • Guidance for 2022: Due to the significant changes in Fellow Finance’s business after the merger, the company does not currently provide a guidance.

Fellow Finance - Short-term burdens

09.12.2021 | Company update

Fellow Finance lowered its guidance, with transaction costs relating to the planned merger a key part. Loan volumes have continued to grow but the relative growth of lower margin business financing and reduction of Lainaamo’s loan portfolio limit revenue growth.

Lowered its 2021 guidance
Fellow Finance issued a profit warning on Thursday, December 2nd. The company now expects revenue in 2021 to be at previous year levels and the result to be clearly unprofitable. Previously the company expected slight growth compared to 2020 and for the result to be slightly unprofitable. The lowered revenue guidance is driven by the relative growth in lower margin business financing and lower interest income from a reduction of the Company’s subsidiary’s, Lainaamo’s, loan portfolio. The profitability is greatly affected by transaction costs relating to the combination agreement with Evli Bank Plc, which are estimated to be around EUR 950,000 in 2021. Profitability is further affected by growth investments.

Loan volumes continuing steady growth
In relation to our earlier estimates, the main change is due to the expected transaction costs, which are clearly higher than we had anticipated, while our 2021 revenue growth estimates are down by a few percentage points. Although profitability is affected by the non-recurring transaction costs the underlying business appears to be performing quite decently. Monthly facilitated loan volumes have surpassed EUR 20m in the past few months, although fee income growth has been slower due to stronger growth in business financing. Should the merger be completed as planned and focus shift to balance sheet lending, the growth would also start to show in profitability figures.

BUY with a target price of EUR 3.5 (3.8)
Excluding the one-off costs, Fellow Finance is showing rather good progress and exhibits profitability upside, should the merger be completed as planned. In light of the near-term challenges, however, we adjust our TP to EUR 3.5 (3.8) with our BUY-rating intact.

Fellow Finance - Return to growth within reach

30.08.2021 | Company update

Fellow Finance’s H1 revenue fell short of our expectations as a result of the business financing driven growth. We expect a return to growth in H2 but have lowered our 2022-2023 growth expectations by some ~10%. We adjust our TP to EUR 3.8 (4.0) and retain our BUY-rating.

Loan mix driven revenue decline in H1
Fellow Finance reported somewhat twofold H1 results. With the loan mix having shifted more towards business financing and the relative fee income to loan volume lower than anticipated revenue was below our estimates, declining 5.3% y/y to EUR 5.5m (Evli EUR 6.2m), despite the 31% y/y growth in intermediated loan volume. EBIT of EUR 0.5m was still in line with our estimate (Evli EUR 0.5m) as a result of reduced costs from lower broker fees and credit losses from Lainaamo as well as a downsizing of Fellow Finance’s own balance sheet stock. Costs did see some additional burden from growth investments, with new and up-coming product launches and slight growth in personnel.

Set to return to growth but pace still somewhat lackluster
We have slightly lowered our 2021 estimates, now expecting revenue of EUR 11.7m (prev. 13.1m) and EBIT of EUR 1.0m (EUR 1.4m) and lowered our 2022-2023 revenue estimates by ~10%. We expect double-digit growth in H2 but for costs increases due to growth investments and the announced combination agreement to keep bottom-line figures at similar levels as in H1. We expect intermediated loan volumes to rebound to 2019 levels but a lower revenue level with the growth in business financing. The easing of temporary regulations domestically and abroad provides support for continued growth in fee income in the near-term, while interest income should see declines with the downsizing of the balance sheet lending.

BUY-rating with a target price of EUR 3.8 (4.0)
In light of our slightly lowered estimates, mainly on the growth side, we adjust our target price to EUR 3.8 (4.0). With the new growth initiatives and loan volume rebounds Fellow Finance is set for a return to growth. We retain our BUY-rating.

Fellow Finance - Earnings flash - Revenue growth not there yet

27.08.2021 | Earnings Flash

Fellow Finance’s H1/21 results fell short from our estimates on the growth side, with revenue of EUR 5.5m (Evli EUR 6.2m), driven by the loan mix due to growth in lower margin business financing. EBIT amounted to EUR 0.5m (Evli EUR 0.5m). The guidance for 2021 remains intact, expecting growth in 2021 but for the result to remain slightly unprofitable due to growth investments.

  • Revenue in H1 amounted to EUR 5.5m (EUR 5.8m in H1/20), below our estimates (Evli EUR 6.2m). Revenue declined 5.3% y/y in H1. The 31% growth in loan volumes as expected did not translate into similar revenue growth due to the loan mix but the impact was larger than we had expected. Compared with H1/20 commission fees declined by 8% and interest yields declined by 2%.
  • Fellow Finance facilitated loans during H1 for a total of EUR 91m (EUR 69.1m in H1/20), growing 31%. Loan volumes rebounded well from the weak comparison period levels. Growth was strong in business financing, but growth was also seen in Finnish consumer financing. International operations are still seeing challenges, with focus on relaunching the Polish and German operations and running down operations in Sweden and the Czech Republic, in line with Fellow Finance’s strategy.
  • The EBIT in H1 amounted to EUR 0.5m (EUR -0.1m in H1/20), in line with our estimates (Evli EUR 0.5m).
  • The EPS in H1 amounted to EUR -0.01 per share (EUR -0.1 in H1/20), in line with our estimate of EUR -0.01.
  • Guidance for 2021 (reiterated): Fellow Finance expects revenue growth compared to 2020 but for the result to remain slightly unprofitable due to investments in new products and growth.

Fellow Finance - Interesting times ahead

26.07.2021 | Company update

Fellow Finance signed a combination agreement with Evli Bank to merge with Evli’s banking services, intended to be carried out during H1/2022. In the more near-term, Fellow Finance has seen a healthy rebound in loan volumes during H1/2021, looking to get back on a growth trajectory.

Signed combination agreement to create “Fellow Bank”
Fellow Finance and Evli Bank signed a combination agreement, by which Evli Bank will demerge through a partial demerger and Fellow Finance will merge with the company that will carry on Evli Bank’s banking services and form “Fellow Bank”. A main idea behind the merger is to combine Evli’s banking and risk management expertise with Fellow Finance’s expertise in lending and assessment of creditworthiness. The combination would in our view create clear synergies and provide a sturdier foundation but with the shift to balance-sheet lending Fellow Finance’s original idea of a scalable lending platform would be less valid. The arrangement is intended to be carried out during the first half of 2022.

Good loan volume growth during H1
H1 has seen loan volumes rebound quite nicely, with the monthly average during H1 at around EUR 15m compared with EUR 11m during H2/20, and most recent months nearing all-time high. We have raised our 2021 estimate to EUR 201m (prev. EUR 160m). The growth should not translate as well into revenue given the growth being driven by lower-margin business lending, but we still expect growth of 18.6% from the weak comparison period. The business lending driven growth should also not burden costs as much, but earnings are still expected to remain low due to growth investments.

BUY with a target price of EUR 4.0 (3.8)
The combination agreement could value Fellow Bank at EUR 50.8m (FF 25.2m, Evli banking serv. 13.9m and 11.7m added capital through share issue), and with at least EUR 30m equity would give a max 1.7x P/B. We will treat Fellow Finance as is for now. On our revised estimates we raise our target price to EUR 4.0 (3.8) and retain our BUY-rating.

Fellow Finance - Growth pace picking up

04.05.2021 | Company update

Fellow Finance’s intermediated loan volumes have picked up nicely in past months, supported by improved availability of financing and less aggressive competition. We now expect growth of 18.1% in 2021. We raise our target price to EUR 3.8 (2.8) and upgrade to BUY (HOLD).

Favourable loan volume development
Fellow Finance has been seeing intermediated loan volumes developing favourably since the second half of 2020, with the growth pace having picked up clearly in recent months. The average monthly volumes in March-April were up close to 100% compared to the volume seen during the early stages of the pandemic. The increase in volumes has to our understanding been largely due to an increased availability of financing and an increase in institutional investor volumes. Within consumer loans the competition also appears to have eased and the competitiveness of Fellow Finance’s offering improved as the more aggressive competitors have taken less aggressive approaches.

Growth seen to pick up to double digits
We have raised our 2021 intermediated loan volume estimate to EUR 186m (prev. 160m), for a 40% y/y growth, and our sales growth estimate to 18.1% (prev. 7.5%). Our profitability estimates remain mostly intact, with the company having estimated for growth projects to keep net earnings slightly negative, which is looking to materialize for instance through the expansion to credit card solutions in cooperation with Enfuce.

BUY (HOLD) with a target price of EUR 3.8 (2.8)
Current valuation puts the intermediation business 2021e EV/Sales at ~1.3x (assuming Lainaamo at BV). Near-term earnings multiples are challenging but with growth picking up, shifting the 2023 targets (sales ~EUR 23m and 15% EBIT-margin) more within grasp, we still see a higher valuation being justified. We raise our target price to EUR 3.8 (prev. 2.8) and upgrade our rating to BUY (HOLD).

Fellow Finance - Time to head back on a growth track

24.02.2021 | Company update

Fellow Finance reported H2 results in line with our expectations. Growth is expected in 2021, with investments into growth and new products seen to keep net earnings negative. We retain our HOLD-rating and target price of EUR 2.8.

H2 results in line with expectations
Fellow Finance reported H2 results quite in line with our expectations. Revenue amounted to EUR 5.3m (Evli EUR 5.5m) and adj. EBIT to EUR 0.7m (Evli EUR 0.7m). Adj. EPS amounted to EUR -0.02 (Evli EUR -0.01). Commission fees declined 44% y/y while interest income increased 16%. Facilitated loan volumes declined some 30% y/y. The BoD as expected proposes that no dividend be paid for FY2020. Fellow Finance expects revenue growth in 2021 compared with 2020 and to remain slightly unprofitable on net earnings level due to investments into new products and growth.

Supportive factors for growth in place
We expect growth of 7.5% in 2021 and adj. EBIT and adj. EPS of EUR 0.9m and EUR -0.04 respectively. We expect growth to be supported by a good traction in business financing, invoice funding in particular, and easing of temporary regulations on consumer financing in key markets. Investor sentiment also appears better compared with mid-2020 and new co-operation agreements such as the recently announced co-operation with Dynamic Credit also aid loan funding concerns. The new strategic initiatives within payment and e-commerce financing will also aid growth but the impact on 2021 will likely not yet be significant.

HOLD-rating and target price of EUR 2.8
We have made some larger downward revisions to our near-term estimates based on the new guidance. Without clearer signs of Fellow Finance moving towards its targets of around EUR 23m revenue and 15% EBIT-margin in 2023 we currently do not see clear upside potential to valuation. We retain our HOLD-rating and target price of EUR 2.8.

Fellow Finance - In line with expectations

23.02.2021 | Earnings Flash

Fellow Finance’s H2/2020 results were quite in line with expectations, with revenue of EUR 5.3m (Evli EUR 5.5m) and an adj. EBIT of EUR 0.7m (Evli EUR 0.7m). Fellow Finance expects growth in 2021 but for the result to remain slightly unprofitable due to growth investments. The BoD proposes that no dividend be paid for FY2020 (Evli EUR 0.00).

  • Revenue in H2 amounted to EUR 5.3m (EUR 7.0m in H2/19), slightly below our estimates (Evli EUR 5.5m). Revenue declined 24.4% in H2. Compared with H2/19 commission fees declined by 44% and interest yields increased by 16%.
  • Fellow Finance facilitated loans during H2 for a total of EUR 64m (EUR 92m in H2/19), a decrease of 30%. Loan volumes were affected by uncertainty caused by the coronavirus pandemic, which interrupted new investments, along with temporary regulations in Finland and Poland, which limited loan intermediation possibilities.
  • Business financing volumes grew 48% compared to H2/19, with invoice funding products in particular faring well during the uncertain times.
  • The adj. EBIT in H2 amounted to EUR 0.7m (EUR 1.0m in H2/19), in line with our estimates (Evli EUR 0.7m).
  • The adj. EPS in H2 amounted to EUR -0.02 per share (EUR 0.01 in H2/19), in line with our estimate of EUR -0.01.
  • Guidance for 2021: Fellow Finance expects revenue growth compared to 2020 but for the result to remain slightly unprofitable due to investments in new products and growth.
  • Dividend proposal: The BoD proposes that no dividend be paid for the FY2020 (Evli EUR 0.00).

Fellow Finance - New strategic initiatives

09.12.2020 | Company update

Fellow Finance held a strategy event, with sights set on launching new payment and e-commerce products in 2021, for both SMEs and consumers. International operations are being focused on current markets, with new openings unlikely. We retain our HOLD-rating and TP of EUR 2.8.

New product launches expected in 2021
Fellow Finance held a strategy event on December 8th. Focus is being set on new payment and e-commerce products for SMEs and consumers, which include credit cards and invoice payment services. With the challenging consumer lending environment and potential extension of the temporary cap on consumer credit interest rates (credit cards excluded) the services could offer more recurring and higher margin fees. The rollouts of the new products are planned for 2021. The company has also restricted its international expansion plans, now focusing on selected existing international markets and new openings in the coming years are unlikely.

Rapid growth still expected
Fellow Finance set its 2023 financial targets, seeking EUR 23m in revenue, of which a significant share from business finance and international markets, and an EBIT-margin of 15%. In 2020 the company expects revenue of approx. EUR 11m and earnings to be negative (H2/2020 close to zero). Our revenue estimates remain largely intact while our 2020 EBIT estimate is up by EUR 0.5m and our 2021-2023 EBIT-margin estimates down by 2-6pp.

HOLD with a target price of EUR 2.8
Although we have lowered our mid-term profitability estimates, the new initiatives appear rather appealing and raise our confidence in Fellow Finance’s ability to navigate the challenging consumer lending environment. Performance in business lending has also been better than anticipated, and loan volumes are picking up nicely. We retain our HOLD-rating and TP of EUR 2.8.

Fellow Finance - Obstacles to overcome

23.10.2020 | Company report

Fellow Finance is a highly scalable international marketplace lending platform. Recent challenges due to increased competition, adverse regulatory decisions and the Coronavirus pandemic caused a setback to the company’s solid growth and profitability track and is now on a slightly challenging turnaround undertaking.

Good track record, challenging year behind...
Fellow Finance is an international marketplace lending platform connecting investors and lenders and facilitates both consumer and business lending. Operations have in the past years been expanded abroad, with operations now in six countries. The company has been able to achieve a good track record on growth and profitability but has since the latter half of 2019 been met with challenges due to regulation, increased competition and volume declines due to the Coronavirus pandemic. As a result of a decline in facilitated loan volumes sales have decreased and profitability has suffered.

... but long-term potential remains
The business environment still remains challenging in the near-term, especially with the temporary cap on interest rates on certain consumer credit. Potential for disruptive growth in the addressable market and the scalability of the platform still continues to offer ample opportunities in the long-term but with the challenges being faced there is still work to be done. With the improving investor demand after a dip in volumes due to the pandemic we expect the negative sales trend to be reversed and profitability to improve as a result in 2021.

HOLD with a target price of EUR 2.8 (2.5)
We base our valuation on peer multiples and derive a fair value of EUR 2.78 using a 2021 P/sales multiple of 1.3x, at a discount to the consumer finance companies given differences and faced challenges and above the somewhat chronically underperforming lending platform peers. We adjust our target price to EUR 2.8 (2.5) and retain our HOLD-rating.

Fellow Finance - Uncertainty in volume recovery

31.08.2020 | Company update

Fellow Finance’s H1 figures were somewhat below our expectations and EBIT barely fell in the red. Volume recovery prospects in 2020 appear rather meager and growth ambitions should pick up during H2 to put things back on track in 2021. We retain our HOLD-rating and TP of EUR 2.5.

EBIT barely in the red
Fellow Finance reported H1 figures somewhat below our expectations. Revenue amounted to EUR 5.8m (Evli 6.3m), declining 20% y/y, and EBIT to EUR -0.1m (Evli 0.3m). Facilitated loan volumes and commissions income declined around 37% y/y respectively, while increases in interest yield income mitigated some of the revenue impact. The uncertainty caused by the coronavirus was clearly visible in loan volumes after March, dropping average volume levels to approx. EUR 9m per month during 4-6/2020 compared with approx. EUR 14.5m during 1-3/2020.

2020 to be a challenging year
Investor’s demand has according to Fellow Finance seen recovery in recent months. The temporary regulation on maximum interest rates on consumer loans in Finland, valid during 1.7-31.12.2020, should have a negligible impact on volumes as Fellow Finance is compensating investors with the difference to the actual interest rate but will result in some additional costs during H2. We currently expect loan volumes to rebound to an EUR 11m per month average level in Q4. Although possible, with the current more challenging environment we do not see Fellow Finance achieving the pre-corona volume levels during 2020. We still expect notable improvements in 2021, assuming an ease in temporary regulations and renewed focus on growth drivers.

HOLD with a target price of EUR 2.5
Our estimates have been slightly lowered post-H1 given the below expectations figures and continued dim outlook for volume recovery. Near-term multiples on our estimates remain unattractive but longer-term growth potential still remains. We retain our HOLD-rating and target price of EUR 2.5.

Fellow Finance - Somewhat weaker than expected

28.08.2020 | Earnings Flash

Fellow Finance’s H1/2020 results were somewhat weaker than expected, with revenue of EUR 5.8m (Evli EUR 6.3m) and an adj. EBIT of EUR -0.1m (Evli EUR 0.3m). The adj. EPS was below our estimates at EUR -0.10 (Evli EUR -0.05). Coronavirus uncertainty and temporary regulations affected facilitated loan volumes, down 36.8% in H1/20 compared with H1/19.

  • Revenue in H1 amounted to EUR 5.8m (EUR 7.2m in H1/19), below our estimates (Evli EUR 6.3m). Revenue declined 19.8% in H1. Compared with H1/19 commission fees declined by 38% and interest yields increased by 31%.
  • Fellow Finance facilitated loans during H1 for a total of EUR 69m (EUR 109.3m in H1/19), a decrease of 36.8%. Loan volumes were affected by uncertainty caused by the coronavirus pandemic, which interrupted new investments, along with temporary regulations in Finland and Poland, which limited loan intermediation possibilities.
  • The adj. EBIT in H1 amounted to EUR -0.1m (EUR 1.4m in H1/19), below our estimates (Evli EUR 0.3m) driven by the lower than expected revenue.
  • The adj. EPS in H1 amounted to EUR -0.10 per share (EUR 0.07 in H1/19), below our estimate of EUR -0.05.
  • Guidance: Fellow Finance withdrew its guidance in March and did not reinstate a guidance in conjunction with the H1 report.
  • Repayment levels of business and consumer loans did not face any significant deterioration despite the challenging environment.
  • Business financing volumes grew 15% compared to H1/19 despite the environment and tightened credit approval criteria.

Fellow Finance - Loan volumes at risk

06.04.2020 | Company update

The Ministry of Justice of Finland has informed that it will start preparing a bill proposal to limit maximum consumer loan interest to 10%. According to Fellow Finance the proposal in its current form would – ceteris paribus – reduce current intermediated loan volumes by approx. 50% compared to March 2020 volumes. We keep our estimates largely intact for now but derive valuation scenarios based on which we adjust our TP to EUR 2.5 (3.0), HOLD-rating intact.

Proposal to cap consumer loan interest at 10% (20%)
The Ministry of Justice of Finland has informed that it will in the upcoming weeks start preparing a bill proposal to limit maximum consumer loan interest to 10% from the current 20% due to the Coronavirus pandemic. The changes are planned to be in effect until the end of 2020. According to Fellow Finance the proposal in its current form would cut current intermediated loan volumes by 50% compared with March 2020 volumes. Furthermore, if investors in a 12% interest risk class would lower interest requirements to the proposed 10% cap, around 80% of current loan volumes could be intermediated.


Proposal would affect near-term profitability
We keep our estimates largely intact for now as the outcome and content of the bill proposal is not yet certain. Given the economic impact of the Coronavirus pandemic and an ease of making drastic decisions we see a high likelihood of the proposed bill passing. We derive scenarios for the possible effects of the proposal and expect a 10% cap to put EBIT in the coming years at near zero or negative.


HOLD with a target price of EUR 2.5 (3.0)
We derive three scenarios based on the planned bill proposal, described more in detail on page two. Based on a weighted approach, assuming an 80% likelihood of the bill passing, we derive a target price of EUR 2.5 (3.0) and keep our HOLD-rating intact.

Fellow Finance - Guidance withdrawn amid uncertainty

27.03.2020 | Company update

Fellow Finance withdrew its 2020 guidance due to the weakened visibility caused by the coronavirus outbreak. We expect the uncertainty to affect investor sentiment and have lowered our estimates for facilitated loan volumes and as a result our revenue and profitability estimates. Fellow Finance will also have to put the brakes on some expansion plans, which will further impede growth. We retain our HOLD-rating with a TP of EUR 3.0 (4.0).

Guidance withdrawn due to coronavirus uncertainty
Fellow Finance withdrew its 2020 guidance due to the weakened visibility caused by the coronavirus outbreak. The company previously expected turnover to grow in 2020 and the growth efforts to decrease operating profit compared to 2019, with growth expected to accelerate during 2021-2022. The uncertainty affects investor sentiment, which we expect to have a negative near-term effect on facilitated loan volumes. Furthermore, Fellow Finance will in the elevated uncertainty situation have to put the brakes on some of its growth plans internationally, which will affect growth in the coming years.

Estimates lowered on weakened investor demand prospects
We have lowered our estimates for facilitated loan volumes, driven by the change in investor sentiment, and as a result our estimates for revenue and profitability. Fortunately, fees from managing the current portfolio along with fees from Lainaamo’s loan commitments will support revenue while the variable cost components, mainly the commissions to loan brokers, should slightly soften the profitability impact. We now expect a 6% revenue decline in 2020 (prev. 4% increase) and an operating profit of EUR 0.6m (prev. EUR 1.3m).

HOLD-rating with a target price of EUR 3.0 (4.0)
On our revised estimates and increased uncertainty, we adjust our target price to EUR 3.0 (4.0). We assume only a fairly moderate deterioration of the economy due to the coronavirus, while a larger deterioration could result in a clear increase in loan defaults and have a clear negative impact on the company.

Fellow Finance - Growth investments in 2020

17.02.2020 | Company update

Fellow Finance’s H2 results fell short of our expectations, with EBIT amounting to EUR 0.3m (Evli 1.0m), affected by non-recurring personnel expense items of EUR 0.7m. Margin pressure is expected to continue in 2020 due to growth investments while accelerated turnover growth is expected in 2021-2022. Fellow Finances BoD proposes that no dividend be paid for FY2019 (Evli EUR 0.04). We retain our HOLD-rating with a target price of EUR 4.0 (4.2).

H2 EBIT below expectations mainly due to NRI’s

Fellow Finance’s H2 results fell short of our expectations. Turnover amounted to EUR 7.0m. Turnover grew 9.1%, driven by an increase in interest yields as commission income decreased slightly. EBIT amounted to EUR 0.3m (Evli 1.0m), impacted by NRI’s of EUR 0.7m. The BoD proposes that no dividend be paid (Evli EUR 0.04 per share). Turnover is expected to grow in 2020 while the operating profit is expected to decrease compared to 2019 (EUR 1.6m) due to growth investments.

Growth investments to lower margins in 2020

We have made downward revisions to our estimates post-H2. We expect an EBIT of EUR 1.3m (prev. 2.1m) and turnover growth of 4% (prev. 6%) in 2020. The consumer lending market in Finland is expected to remain challenging at least during H1/20. We expect limited growth in 2020 as the international operations ramp up and low average consumer loans in Poland, one of the furthest established international markets, will limit the growth pace but offer some upside through higher relative commission yields. We continue to expect growth pick-up in 2021. Profitability will be burdened by higher personnel costs and credit loss reservations associated with scaling up new markets.

HOLD with a target price of EUR 4.0 (4.2)

Fellow Finance’s growth story continues to be challenged by the competitive situation in the consumer lending market in Finland and the visibility into accelerated international growth remains limited. On our revised estimates we adjust our target price to EUR 4.0 (4.2) and retain our HOLD-rating.

Fellow Finance - Miss on earnings, guidance weakness

14.02.2020 | Earnings Flash

Fellow Finance’s H2/2019 results fell short of our expectations. Revenue was as per co’s previous guidance EUR 7.0m, while EBIT and adj. EBIT amounted to EUR 0.3m and EUR 1.0m respectively (Evli EUR 1.0m/1.0m). Fellow Finance’s BoD proposes that no dividend be paid for 2019 (Evli EUR 0.04 per share). Fellow Finance expects turnover to grow in 2020 while growth efforts are expected to decrease the operating profit compared to 2019.

  • Revenue in H2 amounted to EUR 7.0m (EUR 6.4m in H2/18), in line with our estimates (Evli EUR 7.0m, pre-announced). Growth in H2 amounted to 9.1%.
  • Fellow Finance facilitated loans during H2 for a total of EUR 92m (EUR 96m in H2/18).
  • Adj. EBIT in H2 amounted to EUR 1.0m (EUR 1.7m in H2/18), in line with our estimates (Evli EUR 1.0m). EBIT amounted to EUR 0.3m (Evli EUR 1.0m).
  • Adj. EPS in H2 amounted to EUR 0.01 per share (EUR 0.14 in H2/18), below our estimate of EUR 0.04. EPS amounted to EUR -0.07 (Evli EUR 0.04)
  • Guidance: In 2020, turnover is expected to grow, and the company's growth efforts are expected to decrease operating profit compared to 2019. The guidance implies weaker figures than we had expected, as we have estimated minor growth in 2020 but EBIT of EUR 2.1m. New guidance implies EBIT of less than EUR 1.6m.
  • Dividend proposal: The BoD proposes that no dividend be paid for 2019 (Evli EUR 0.04).
  • During H2 new services and market openings were prepared and a subsidiary established in Estonia.

Fellow Finance - Looking for signs of growth pick-up

11.02.2020 | Preview

Fellow Finance will report H2/19 results on February 14th. Revenue growth will based on company guidance have been around 10% during H2 despite a minor decline in intermediated loan volumes. We expect the slower growth and increased competition in Finland to have had a negative impact on margins. We expect a dividend proposal of EUR 0.04 per share. We retain our HOLD-rating and lower our target price to EUR 4.2 (5.0) ahead of H2 results.

Slower loan volume growth puts pressure on margins

Company guidance for 2019 puts full-year revenue growth at around 19% and the implied H2/19 growth will be around 10%. Intermediated loan volumes during H2 have seen minor declines compared with H2/18, affected by the increased competition within consumer lending in Finland. Revenue growth is as such expected to be driven by higher interest income. We expect margins to have continued to decline with the slower revenue growth and the impact of the increased competition on broker commissions. We expect a dividend proposal of EUR 0.04 per share (2018: 0.04).

2020 expected to remain a ramp-up year

We expect 2020 to continue to be challenging for Fellow Finance. Fellow Finance’s growth story was heavily dented by the stalling intermediated loan volume development and profitability has declined. We expect 2020 to continue to be a ramp-up year for international operations but do not expect the growth to materialize significantly before 2021. Growth investments are also expected to have an impact on margins, and we expect a minor decline in operating profit in 2020.

HOLD with a target price of EUR 4.2 (5.0)

Without any clear signs of growth pick-up, we find it hard to identify clear near-term upside potential. The 2020 guidance should hopefully provide more light on the matter. We lower our target price to EUR 4.2 (5.0) and retain our HOLD-rating.

Fellow Finance - Growth pick-up taking time

26.08.2019 | Company update

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.

Fellow Finance - Growth some 30% in H1

23.08.2019 | Earnings Flash

Fellow Finance’s H1/2019 revenue and EBIT were quite in line with expectations, with revenue of EUR 7.2m (Evli EUR 7.0m) and an EBIT of EUR 1.4m (Evli EUR 1.3m). EPS was below our estimates at EUR 0.06 (adj. EPS EUR 0.07, Evli EUR 0.09). Fellow Finance expects revenue in 2019 to grow by over 20 % and the adjusted EBIT to be lower than in 2018 (updated 16.8.2019).

  • Revenue in H1 amounted to EUR 7.2m (EUR 5.6m in H1/18), quite in line with our estimates (Evli EUR 7.0m). Growth in H1 amounted to 29.6%.
  • Fellow Finance facilitated loans during H1 for a total of EUR 109m (EUR 76.5m in H1/18).
  • EBIT in H1 amounted to EUR 1.4m (EUR 1.7m in H1/18), in line with our estimates (Evli EUR 1.3m).
  • EPS in H1 amounted to EUR 0.06 per share (EUR 0.14 in H1/18), below our estimate of EUR 0.09. The for listing expenses adjusted EPS amounted to EUR 0.07.
  • Guidance: Fellow Finance expects revenue in 2019 to grow by over 20 % and the adjusted EBIT to be lower than in 2018 (updated 16.8.2019).
  • Fellow Finance will during the end of the year continue to expand to new markets.

Fellow Finance - Guidance for 2019 lowered

19.08.2019 | Company update

Fellow Finance lowered its 2019 guidance due to weaker intermediated loan volume development and a more aggressive execution of its international expansion strategy. We have lowered our 2019 adj. EBIT estimate down by some 40%. On our lowered estimates and given the increased uncertainty we downgrade to HOLD (BUY) with a target price of EUR 5.5 (9.0).

Lowered guidance for sales and profitability

Fellow Finance gave an updated guidance, according to which the 2019 revenue is expected to grow by over 20% (prev. over 30%) while the adjusted operating profit is expected to be lower than in (prev. grow from) 2018. The guidance revision is mainly due to a lower than expected intermediated loan volume and a more aggressive than international expansion strategy. Based on monthly figures the intermediated loans saw good growth during early to mid H1, with the summer months having exhibited a growth pace decline.

Our 2019 adj. EBIT estimate lowered by some 40%

For Fellow Finance to achieve the new guidance a pick-up in intermediated loan volume growth will be needed in H2/19. The more aggressive execution of the international expansion strategy should support volume growth. On our revised estimates we expect a 25% y/y growth in intermediated loan volumes during H2/19 and 2019 sales to grow 22% to EUR 14.6m (prev. 16.5m). The guidance given for operating profit leaves room for notable uncertainty regarding profitability levels. We estimate a 2019 adj. operating profit of EUR 2.6m (prev. 4.5m), down from EUR 3.5m in 2018, based on the expected lower revenue while keeping our cost structure estimates essentially unchanged.

HOLD (BUY) with a target price of EUR 5.5 (9.0)

On our revised estimates valuation does not appear particularly attractive. Fellow Finance will post H1/19 results on August the 23rd, which should provide much-needed clarity on earnings development and outlook. On our clearly lower estimates and increased uncertainty we downgrade to hold ahead of the H1 results with a target price of EUR 5.5 (9.0).

Fellow Finance - Upgrade to BUY

15.02.2019 | Company update

Fellow Finance’s H2 revenue and EBIT amounted to EUR 6.4m (Evli 6.7m) and EUR 1.7m (Evli 1.7m) respectively. Fellow Finance expects revenue in 2019 to grow over 30% and the adjusted operating profit to grow compared to 2018. Consumer loans in Finland still accounted for the majority loan volume but international operations and business financing saw growth picking up. We upgrade to BUY (HOLD) with a TP of EUR 9.0 (8.0).

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).

Fellow Finance - EBIT above expectations

14.02.2019 | Earnings Flash

Fellow Finance’s H2/2018 revenue and EBIT amounted to EUR 6.4m (Evli EUR 6.7m) and EUR 2.3m (Evli EUR 1.7m) respectively. Fellow Finance expects revenue in 2019 to grow by over 30 % and the adjusted EBIT to grow compared to 2018. The dividend proposal is EUR 0.04 per share (Evli EUR 0.10).

  • Revenue in H2 amounted to EUR 6.4m (EUR 4.7m in H2/17), slightly below our estimates (Evli EUR 6.7m).
  • Fellow Finance facilitated loans during 2018 for a total of EUR 172m (Evli 164m).
  • EBIT in H2 amounted to EUR 2.3m (EUR 1.5m in H2/17), above our estimates (Evli EUR 1.7m). The adjusted EBIT amounted to EUR 2.5m excluding expenses related to the company’s IPO.
  • EPS in H2 amounted to EUR 0.0 per share. The for listing expenses adjusted EPS amounted to EUR 0.14.
  • Dividend: Fellow Finance’s BoD proposes a dividend of EUR 0.04 per share (Evli EUR 0.10)
  • Guidance: Fellow Finance expects revenue in 2019 to grow by over 30 % and the adjusted EBIT to grow compared to 2018.
  • Fellow Finance expanded its service offering to Denmark during early 2019, now having a presence in five countries.

Fellow Finance - Initiating coverage with HOLD

22.11.2018 | Company report

Fellow Finance is a P2P lending platform with high scalability at the core of its business model, seeking rapid organic and profitable growth domestically and internationally, with a proven track of growth and profitability. We initiate coverage with HOLD and a target price of EUR 8.0.

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.

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Company Facts

Guidance

Revenue in 2021 is expected to be at previous year levels and net earnings to be clearly unprofitable

Financial targets

Financial targets for 2023: revenue to be EUR 23m, EBIT-margin of 15%, and a significant share of net sales from business finance and international markets

 

Share price (EUR)


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