Tightening European Rules And Fintech Rivals Will Shrink Margins

Key Takeaways

• Heightened regulatory pressures, rising costs, and changing industry dynamics threaten Avanza's profitability, revenue model sustainability, and ability to innovate effectively.
  
• Intensifying competition from large incumbents, fintechs, and tech-driven entrants puts Avanza's market share, client retention, and earnings growth at risk.
  
• Favorable market trends, high customer loyalty, product innovation, operational efficiency, and strong capital management position Avanza for sustained growth and resilience.

Catalysts

Offers a range of savings, pension, and mortgages products in Sweden.

• Intensifying regulatory scrutiny and tightening compliance requirements across Europe are likely to steadily increase Avanza's operational costs and constrain product innovation, making sustainable margin expansion and high profitability increasingly difficult to sustain in the medium to long term.
  
• Avanza's reliance on net interest income exposes it to the global and regional trend of persistent normalization or decline in interest rates, which will exert structural downward pressure on net interest margins and limit future earnings growth, especially as competition for deposits intensifies and further rate cuts are likely.
  
• The competitive landscape is rapidly evolving as larger incumbent banks and aggressive fintechs launch rival digital investment platforms with broader product suites and greater capacity for technological investment, making Avanza's market share, organic client acquisition, and revenue growth vulnerable to erosion in its core Swedish market.
  
• Consumer expectations for seamless, highly personalized digital experiences are accelerating, with big tech entrants and AI-driven robo-advisors steadily capturing mindshare and assets. This long-term shift risks undermining Avanza's customer retention, brand loyalty advantage, and could increase both technology costs and customer churn, putting pressure on client lifetime value and net profit margins.
  
• Structural industry shifts toward zero-commission investing, ongoing compression in transaction and fund commission fees, and rising compliance costs from ESG and cross-European regulation threaten to undermine the sustainability of Avanza's revenue model. This exposes the company to weaker top-line growth, margin contraction, and greater earnings volatility as automation and commoditization reshape the industry.

Avanza Bank Holding Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Avanza Bank Holding compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Avanza Bank Holding's revenue will grow by 2.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 53.7% today to 55.4% in 3 years time.
• The bearish analysts expect earnings to reach SEK 2.8 billion (and earnings per share of SEK 17.56) by about September 2028, up from SEK 2.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 19.0x on those 2028 earnings, down from 21.7x today. This future PE is lower than the current PE for the GB Capital Markets industry at 23.7x.
• 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 6.02%, as per the Simply Wall St company report.

Avanza Bank Holding Future Earnings Per Share Growth

Risks

• Avanza continues to benefit from long-term secular tailwinds in Sweden, including rising real wages, a positive long-term outlook for increased savings, and an expanding addressable savings market, all of which can drive higher assets under management and revenue growth in the coming years.
  
• The company maintains high customer satisfaction and brand strength, evidenced by its status as one of the highest regarded companies in Sweden and a low customer churn rate of 1.7 percent, which supports organic customer growth and recurring fee income over time.
  
• Strategic product innovation and platform enhancements, such as offering expanded access to European markets and improved mortgage products via partnerships, position Avanza to increase cross-selling opportunities and further differentiate itself, supporting increased client assets, revenue, and earnings resilience.
  
• Operational efficiency and cost discipline are evident, with costs generally developing in line with communicated plans, while investments in cloud migration and automation are expected to further enhance operational scalability and profit margins as the business grows.
  
• Successful capital management, including the oversubscribed AT1 capital issuance and a strengthened capital position, increases Avanza's ability to capture further deposit growth and support regulatory requirements, reducing financial risk and supporting long-term net margin and profitability.

Valuation

• The assumed bearish price target for Avanza Bank Holding is SEK279.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Avanza Bank Holding's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK405.0, and the most bearish reporting a price target of just SEK279.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be SEK5.0 billion, earnings will come to SEK2.8 billion, and it would be trading on a PE ratio of 19.0x, assuming you use a discount rate of 6.0%.
• Given the current share price of SEK344.6, the bearish analyst price target of SEK279.0 is 23.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.