New Instant Payment Regulations And Competition In Financial Planning May Undermine Future Profitability

Key Takeaways

• Leveraging structural tailwinds and efficient marketing is set to boost assets, deposits, and future revenue through accelerated client acquisition.
  
• Expanding client base and new initiatives like brokerage-only accounts are anticipated to enhance brokerage revenues and earnings.
  
• Intense competition and rising costs threaten FinecoBank's profitability, with regulatory changes and stagnant investment margins further impacting revenue streams.

Catalysts

Provides banking and investment products and services.

• FinecoBank's strategy to leverage structural tailwinds for higher assets under management and deposits, coupled with efficient marketing activities, is expected to enhance future revenue growth as new client acquisition accelerates.
  
• The continuous increase in the contribution of Fineco Asset Management to the group's net sales, with a focus on controlling the investing value chain, is anticipated to drive a favorable mix and improve net margins.
  
• The bank's strong capital position, with a CET1 ratio of 27.3%, supports opportunities for strategic growth investments and higher dividend payouts, which could boost earnings per share.
  
• FinecoBank anticipates a low double-digit growth in investing revenues in 2024 and 2025, which is likely to positively impact the revenue mix and overall earnings.
  
• Expanding the client base and the introduction of new initiatives such as brokerage-only accounts and platforms like Fineco X, which cater to a growing interest in active investing, are expected to increase brokerage revenues and, in turn, contribute to higher overall earnings.

FinecoBank Banca Fineco Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming FinecoBank Banca Fineco's revenue will decrease by -0.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 49.6% today to 48.2% in 3 years time.
• Analysts expect earnings to reach €623.4 million (and earnings per share of €1.0) by about December 2027, down from €644.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.1x on those 2027 earnings, up from 16.0x today. This future PE is greater than the current PE for the GB Banks industry at 13.1x.
• Analysts expect the number of shares outstanding to grow by 0.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.97%, as per the Simply Wall St company report.

FinecoBank Banca Fineco Future Earnings Per Share Growth

Risks

• The implementation of new regulations on instant payments is expected to lead to a slight decrease in banking fees by 2025, which might negatively impact revenue streams.
  
• Operating costs are projected to increase by about 6% year-on-year for both 2024 and 2025, excluding additional marketing and growth costs, potentially squeezing net margins.
  
• The anticipated decline in interest rates could lead to a reduction in net interest income generated by the existing stock of deposits, affecting overall earnings.
  
• The intense competition in recruitment for financial planners, with some players aggressively overpaying for talent, may pressure FinecoBank to increase compensation, impacting profitability.
  
• The current plateau in the improvement of investment margins, despite the increase in assets under Fineco Asset Management, could hinder expected margin expansion if this trend continues, impacting net earnings.

Valuation

• The analysts have a consensus price target of €16.84 for FinecoBank Banca Fineco 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 €19.4, and the most bearish reporting a price target of just €14.8.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €1.3 billion, earnings will come to €623.4 million, and it would be trading on a PE ratio of 21.1x, assuming you use a discount rate of 8.0%.
• Given the current share price of €16.86, the analyst's price target of €16.84 is 0.1% 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.