Introducing The Danish Livrente Pension Product Will Tap Into A SEK 2 Trillion Market

Key Takeaways

• Expansion into Germany and new financial products are key growth opportunities, potentially increasing Nordnet's revenue and market presence.
  
• Focus on marketing and operational efficiency with higher operating leverage aims to boost customer growth and enhance profitability.
  
• Nordnet's expansion in Germany faces profitability risks due to high competition, rising costs, and potential market share challenges impacting future earnings and margins.

Catalysts

Engages in the savings and investments, pensions, and loans businesses in Sweden, Norway, Denmark, and Finland.

• The planned launch of Nordnet in Germany in 2026, a market that is twice the size of the Nordics with a growing interest in stocks and funds, is a significant growth opportunity. This expansion could potentially increase Nordnet’s revenue through a broader customer base and increased savings capital.
  
• Successful introduction of new products like the Danish livrente pension product, which opens up a market worth SEK 2 trillion, could spur growth in savings capital and revenues. Further expansion in similar products may boost revenue and net interest income through increased customer deposits and savings.
  
• Continued marketing investment, including a SEK 125 million budget for 2025, is expected to drive customer growth, which was noted to be 40% year-on-year. This could lead to increased revenue as more customers potentially translate to higher trading volumes and savings capital per customer.
  
• The company’s focus on enhancing its fund and trading business, especially its own Nordnet-branded funds, is positioned to benefit revenue growth due to the higher margins and stabilizing shift from active to passive funds.
  
• Higher operating leverage with revenues growing significantly faster than costs (revenue growing 30% per year while costs increase by only 6%) indicates operational efficiency, which could increase net margins and profitability over time.

Nordnet Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nordnet's revenue will grow by 2.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 47.5% today to 55.3% in 3 years time.
• Analysts expect earnings to reach SEK 3.4 billion (and earnings per share of SEK 13.64) by about March 2028, up from SEK 2.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK3.9 billion in earnings, and the most bearish expecting SEK3.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.2x on those 2028 earnings, up from 22.3x today. This future PE is greater than the current PE for the SE Capital Markets industry at 17.8x.
• Analysts expect the number of shares outstanding to decline by 0.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.0%, as per the Simply Wall St company report.

Nordnet Future Earnings Per Share Growth

Risks

• Nordnet's expansion into Germany is a significant investment, and there's a risk it may not capture enough market share to justify costs, potentially impacting future earnings.
  
• Lower net interest income due to selling the personal loans portfolio and fluctuating interest rates may affect Nordnet’s revenue projections and net margins.
  
• The competitive landscape in Germany, with complex brokerage pricing and entrenched competitors, may delay profitability and affect revenue growth.
  
• Marketing and operational costs are rising significantly, which might compress net margins if revenue growth does not meet expectations.
  
• The increased allocation to marketing strategies is intended to drive growth but may not yield the desired results, posing a risk to both revenue and profitability in the Nordic markets.

Valuation

• The analysts have a consensus price target of SEK252.5 for Nordnet 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 SEK290.0, and the most bearish reporting a price target of just SEK215.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK6.1 billion, earnings will come to SEK3.4 billion, and it would be trading on a PE ratio of 23.2x, assuming you use a discount rate of 8.0%.
• Given the current share price of SEK242.6, the analyst price target of SEK252.5 is 3.9% higher. 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.