Launching Cryptocurrency Trading And Pension Accounts Will Expand European Footprint

Key Takeaways

• New product launches and regulatory resolution are expected to boost revenue, operational efficiency, and overall profitability for flatexDEGIRO.
  
• Share buyback program could enhance earnings per share, improve stock valuation and shareholder returns.
  
• Managing high administrative expenses and executing strategic changes are critical, as these challenges may pressure profitability and impede revenue growth and operational efficiency.

Catalysts

Provides online brokerage and IT solutions in the areas of finance and financial technology services in Europe.

• Launching new products like direct cryptocurrency trading is expected to boost flatexDEGIRO's revenue by tapping into the growing demand for crypto assets across their European platforms.
  
• The introduction of personnel pension accounts, pending government approval, could expand flatexDEGIRO's customer base and assets under management in Germany, potentially leading to increased revenue and earnings.
  
• The termination of the BaFin special commissioner's mandate and resolution of regulatory issues allow flatexDEGIRO to refocus on growth and operational efficiency, likely enhancing net margins and overall profitability.
  
• Increased marketing and new product launches are expected to drive higher trading activity and customer acquisition, supporting both revenue growth and improved net margins through enhanced operational leverage.
  
• A share buyback program amounting up to €50 million could bolster earnings per share (EPS) and potentially improve stock valuation by lowering the share count and enhancing shareholder returns.

flatexDEGIRO Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming flatexDEGIRO's revenue will grow by 6.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.4% today to 28.3% in 3 years time.
• Analysts expect earnings to reach €149.5 million (and earnings per share of €1.35) by about February 2028, up from €117.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €110.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.8x on those 2028 earnings, down from 16.4x today. This future PE is lower than the current PE for the DE Capital Markets industry at 18.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.31%, as per the Simply Wall St company report.

flatexDEGIRO Future Earnings Per Share Growth

Risks

• The potential decline in net interest income due to falling ECB rates could impact overall profitability, as lower interest revenue may not be fully offset by increased commission income. This could squeeze net margins if not managed appropriately.
  
• The company is facing high administrative expenses, particularly from IT, legal, and consulting costs, which they aim to manage better. If these costs are not effectively reduced, they could continue to pressure net earnings.
  
• Achieving a stable regulatory position after the previous BaFin findings may still involve ongoing adjustments. Any delays or further requirements could impact the company’s ability to focus on growth initiatives, potentially affecting revenue and net income.
  
• The company’s expansion into new products such as cryptocurrency trading carries execution risk and uncertainty in expected financial returns, which could potentially underperform expected outcomes and affect revenue growth.
  
• Changes to the legal structure involve complexities and adjustments that may limit operational focus temporarily, thereby impacting both revenue growth and administrative efficiency.

Valuation

• The analysts have a consensus price target of €16.409 for flatexDEGIRO based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €18.5, and the most bearish reporting a price target of just €13.7.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €528.4 million, earnings will come to €149.5 million, and it would be trading on a PE ratio of 13.8x, assuming you use a discount rate of 5.3%.
  
• Given the current share price of €17.72, the analyst price target of €16.41 is 8.0% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.