Key Takeaways

Hoist Finance's strategic moves in IT and market expansions aim to enhance efficiency and net margins for improved profitability.
Investments in portfolios and strategic partnerships are key to driving robust revenue growth and stabilizing net interest margins.
Regulatory uncertainty, restructuring, and high costs may impact Hoist Finance's profitability and growth, with reliance on partnerships potentially diluting earnings.

Catalysts

About Hoist Finance

A credit market company, engages in the loan acquisition and management operations in Europe.What are the underlying business or industry changes driving this perspective?

The active European NPL market and Hoist Finance’s strategic position as a capital-heavy player indicate potential for continued growth and profitability, likely impacting revenue positively as they strive to become the leading investor and asset manager of consumer and SME nonperforming loans.
In-sourcing IT maintenance and strategic expansions into new markets are expected to improve operational efficiency and cost management, potentially leading to enhanced net margins in the future.
Record investments and portfolio growth, with SEK 10.8 billion invested, represent a significant catalyst for future income growth, affecting both revenue and earnings positively as the company capitalizes on attractive market opportunities.
Hoist Finance’s focus on improving local return on equity and profitability, along with a restructuring program to streamline operations, positions them to bolster their earnings through increased efficiency and reduced indirect costs.
The implementation of a co-investment strategy and strategic partnerships aims to diversify risk and expand sourcing capabilities, potentially stabilizing net interest margins and supporting robust revenue growth.

Hoist Finance Earnings and Revenue Growth

Hoist Finance Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Hoist Finance's revenue will grow by 13.4% annually over the next 3 years.
Analysts assume that profit margins will increase from 20.7% today to 26.2% in 3 years time.
Analysts expect earnings to reach SEK 1.6 billion (and earnings per share of SEK 20.31) by about May 2028, up from SEK 879.0 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 7.7x on those 2028 earnings, down from 8.6x today. This future PE is lower than the current PE for the GB Consumer Finance industry at 22.7x.
Analysts expect the number of shares outstanding to decline by 0.67% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.43%, as per the Simply Wall St company report.

Hoist Finance Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The regulatory uncertainty surrounding the SDR status and potential delays until 2027 could impact investor confidence, possibly affecting future revenue and net margins if Hoist Finance cannot capitalize on certain growth opportunities.
The restructuring and divestments, such as those in Spain and Italy, indicate that certain segments are not performing as expected, which might affect the overall revenue growth and net earnings.
Hoist Finance's continued high costs, including recurring one-off restructuring expenses in recent quarters, could affect net margins and profitability if not effectively managed or if they become a consistent part of the financial structure.
The high level of co-investments and potential reliance on partnerships to source volumes from the industry may dilute earnings and affect the company's ability to fully capitalize on its investments.
The delay in reaching the NSFR target and reliance on securitizations and co-investments as mitigation strategies could increase funding costs, potentially impacting the net interest margin and overall financial health.

Valuation

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

The analysts have a consensus price target of SEK118.0 for Hoist Finance based on their expectations of its future earnings growth, profit margins and other risk factors.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK6.2 billion, earnings will come to SEK1.6 billion, and it would be trading on a PE ratio of 7.7x, assuming you use a discount rate of 7.4%.
Given the current share price of SEK86.0, the analyst price target of SEK118.0 is 27.1% 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.