Expanding European Crypto Markets Will Revitalize Core Services

Key Takeaways

• Expansion into new European markets is expected to grow the customer base and increase revenue through higher trading volumes.
  
• Strategic divestments and cost efficiencies may enhance net margins and profitability while diversifying financial service offerings.
  
• Revenue growth is driven by temporary factors and market volatility, raising concerns over sustainability amid potential rate cuts and shifting investor focus.

Catalysts

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

• The rollout of the cryptocurrency offering to additional European markets (France, the Netherlands, Austria, and Spain) is expected to expand flatexDEGIRO's customer base and increase trading volumes, thereby driving future revenue growth.
  
• The divestment of non-core real estate credit loan portfolio and improved non-performing loan (NPL) ratio allow flatexDEGIRO to reallocate capital towards its core brokerage and investment services, potentially resulting in higher net margins and earnings by optimizing capital efficiency.
  
• The high level of trading activity and strong customer growth suggest ongoing momentum, and while activity may normalize, the increase in customer transactions and engagement can contribute to sustained revenue and earnings growth.
  
• Efficient cost management and operational efficiency improvements, including reductions in administrative expenses, are likely to positively impact net margins and enhance overall profitability.
  
• The company's strategic initiatives, such as the focus on launching new deposit and securities lending products, are aimed at diversifying and expanding service offerings, which can drive additional revenue streams and improve financial performance in the long term.

flatexDEGIRO Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming flatexDEGIRO's revenue will grow by 8.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 23.8% today to 31.1% in 3 years time.
• Analysts expect earnings to reach €187.8 million (and earnings per share of €1.73) by about May 2028, up from €111.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €211.4 million in earnings, and the most bearish expecting €163.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.3x on those 2028 earnings, down from 22.2x today. This future PE is lower than the current PE for the DE Capital Markets industry at 26.7x.
• Analysts expect the number of shares outstanding to decline by 1.82% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.57%, as per the Simply Wall St company report.

flatexDEGIRO Future Earnings Per Share Growth

Risks

• Interest income remained stable despite lower interest rates, which suggests reliance on factors like margin volume and cash deposits; potential further rate cuts by the European Central Bank and normalization of cash levels could negatively impact future interest earnings.
  
• The trading volume surge attributed to heightened market volatility driven by geopolitical events and tariff announcements may not be sustainable, implying that future revenue driven by trading commissions could decrease if market conditions stabilize.
  
• Only a small portion of the cash inflow is from recurring sources like savings plans, suggesting that a significant amount of cash may not provide sustained revenue growth as clients hold cash due to current market uncertainty.
  
• Revenue grew largely due to temporary factors such as connectivity fees and increased U.S.-related trades; if investor focus shifts more towards Europe and U.S. trade interest declines, it could negatively impact revenue per trade.
  
• The company's conservative approach to guidance reflects significant uncertainty in future financials, partially due to anticipated changes in market volatility and interest income expectations, potentially limiting visibility into consistent future earnings.

Valuation

• The analysts have a consensus price target of €22.591 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 €26.0, and the most bearish reporting a price target of just €17.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €603.6 million, earnings will come to €187.8 million, and it would be trading on a PE ratio of 14.3x, assuming you use a discount rate of 5.6%.
  
• Given the current share price of €23.1, the analyst price target of €22.59 is 2.3% 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.