European Expansion And Apple Pay Integration Will Improve Future Prospects

Key Takeaways

• Strategic focus on payments and divesting loans enhances operational efficiency and potential for improved net margins through market demand capitalization.
  
• Investments in geographical expansion and technology aim to boost revenues and margins, leveraging increased conversions and merchant partnerships for sustainable growth.
  
• Qliro's focus on accelerated growth threatens short-term financial performance due to increased spending and adjustments, impacting net margins and revenue diversification.

Catalysts

Operates as a fintech company.

• Qliro's strategic shift to focus exclusively on payments, supported by the divestiture of its loans business, provides a clear pathway for accelerated revenue and volume growth, enhancing operational focus and potentially improving net margins as the company capitalizes on market demand.
  
• The company is investing heavily in geographical expansion, with new offices and teams in Norway and Finland, and plans for further expansion across Europe, which can significantly boost revenues as these new markets contribute to growth beyond the established Swedish base.
  
• The introduction of the Qliro Checkout 0.0 and new payment methods like Apple Pay, alongside investments in consumer experience, are designed to increase conversion rates, thus potentially increasing merchant sales and Qliro's associated fee income, impacting both revenue and gross margins positively.
  
• Enhanced onboarding techniques and expanded merchant partnerships indicate strong pipeline potential, which is expected to generate a minimum of 35% growth in payment volumes and progressively translate these into income growth over the next 18 months. This forward-looking growth can lead to improved long-term earnings.
  
• Strategic technology investments offer scalability, allowing for significant growth in processing volumes without a proportional increase in costs. This can lead to improved net margins and overall profitability as payment volumes double, supporting a sustainable increase in earnings.

Qliro Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Qliro's revenue will grow by 24.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.8% today to 12.9% in 3 years time.
• Analysts expect earnings to reach SEK 82.8 million (and earnings per share of SEK 3.01) by about January 2028, up from SEK 6.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.1x on those 2028 earnings, down from 81.3x today. This future PE is lower than the current PE for the SE Consumer Finance industry at 44.3x.
• Analysts expect the number of shares outstanding to grow by 8.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.43%, as per the Simply Wall St company report.

Qliro Future Earnings Per Share Growth

Risks

• Qliro's strategic shift from profit to accelerated growth involves increased spending in sales, marketing, and geographic expansion, which can negatively impact net margins and earnings in the short term.
  
• The transition of new merchant onboarding and integration can take up to a year, causing delays in revenue realization and affecting short-term financial performance.
  
• The divestment of the loans business and shift from digital banking could limit revenue streams and make the company more reliant solely on payments, which may affect revenue diversification.
  
• There is a lag in adjusting consumer deposit interest rates to market rates, which could lead to temporary mismatches impacting net interest income growth.
  
• Increased investment costs and restructuring expenses, labeled under items affecting comparability, could impact operating profits as Qliro continues to optimize its cost base for expansion.

Valuation

• The analysts have a consensus price target of SEK29.0 for Qliro 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 SEK644.3 million, earnings will come to SEK82.8 million, and it would be trading on a PE ratio of 11.1x, assuming you use a discount rate of 5.4%.
• Given the current share price of SEK22.9, the analyst's price target of SEK29.0 is 21.0% 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.