Automation And Unsecured Portfolio Expansion Will Drive Stronger Earnings Power Over The Long Term

Catalysts

About B2 Impact

B2 Impact is a European credit management and debt purchase company focused on acquiring and collecting non performing loan portfolios with scalable, technology driven operations.

What are the underlying business or industry changes driving this perspective?

• Accelerating investment activity, including substantial forward flow agreements for unsecured portfolios, is set to convert into sustained double digit collection growth and higher revenue visibility into 2026 and beyond.
• Ongoing automation, self service channels and disciplined cost control are reducing FTEs while collections per employee increase, which expands operating leverage and supports structurally higher net margins.
• Strategic reallocation from REO assets into higher yielding unsecured portfolios, funded by strong REO sales and low leverage, is expected to lift ERC growth and translate into stronger earnings and dividend capacity.
• An improved funding profile, reflected in lower bond margins and abundant liquidity on the RCF, enhances B2 Impact’s ability to win portfolios at attractive prices and supports further expansion of earnings per share.
• Consistently strong collection performance above 100 percent of forecasts and positive ERC revaluations point to conservative portfolio assumptions. This can drive upside to book value and earnings if the trend persists.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming B2 Impact's revenue will grow by 19.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.9% today to 18.7% in 3 years time.
• Analysts expect earnings to reach NOK 864.5 million (and earnings per share of NOK 2.34) by about December 2028, up from NOK 490.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 10.9x on those 2028 earnings, down from 12.6x today. This future PE is lower than the current PE for the GB Consumer Finance industry at 12.6x.
• Analysts expect the number of shares outstanding to grow by 0.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.57%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The strategy relies on continued double digit growth in unsecured collections and sustained overperformance versus ERC forecasts. A cyclical weakening in debtor affordability or tighter consumer protection rules across Europe could slow recoveries and force downward ERC revaluations, pressuring revenue and earnings.
• Management is rapidly reallocating capital from REO into unsecured portfolios while committing around NOK 3 billion of new investments and forward flows. If future portfolio vintages underperform past returns or are mispriced in a more competitive NPL market, the gross and net IRR could fall, eroding net margins and EPS growth.
• The business model depends heavily on automation, self service channels and a scalable cost base to keep operating expenses growing slower than collections. Any execution issues with technology projects or integration of platforms like Zolva that delay efficiencies could cause operating costs to rise faster than cash collections, compressing net margins and earnings.
• Although recent refinancing reduced annual interest costs and leverage is currently low, a shift to structurally higher interest rates or reduced access to bond and RCF funding would increase the marginal cost of capital and limit the ability to fund NOK 3.3 billion or more of annual investments. This would slow portfolio growth and future revenue and EPS expansion.
• The company is guiding for high and rising dividends supported by strong cash earnings and REO sales. If REO disposal volumes normalize more quickly than expected or macro conditions weaken and cash earnings become less robust, management may be forced to prioritize deleveraging and reinvestment over distributions, reducing dividend growth and potentially lowering the share price.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of NOK18.65 for B2 Impact based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be NOK4.6 billion, earnings will come to NOK864.5 million, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 10.6%.
  
• Given the current share price of NOK16.64, the analyst price target of NOK18.65 is 10.8% higher.
  
• 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.