Robust Customer Growth And Danish Pension Launch Drive Revenue And Margin Expansion

Key Takeaways

• Strong customer growth and increased savings highlight revenue potential, with higher-margin branded funds bolstering profitability as customer preferences shift.
  
• Regional diversification and strategic product launches support stable, diversified growth and highlight management's confidence through a significant share buyback initiative.
  
• Increased competition, declining net interest income, and costly customer acquisition strategies could pressure Nordnet's revenue and margins amidst stable market trading conditions.

Catalysts

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

• Nordnet's robust customer growth, with an increase to 2 million customers and strong net savings of SEK 54 billion in 2024, suggests further potential to boost revenue through expanded customer engagement and savings growth.
  
• The expansion and strong performance in Nordnet's own branded fund offerings, which have a higher margin compared to external funds, could enhance net margins as the customer base increasingly favors these products.
  
• Strategic initiatives such as the launch of the Danish Livrente pension product, tapping into a SEK 2 trillion market, are expected to drive revenue growth as they expand Nordnet's product portfolio and regional penetration.
  
• The continued efforts on geographical diversification and strong market presence in countries like Denmark and Finland are expected to spread operational risks and provide stable, diversified revenue growth, enhancing long-term earnings stability.
  
• The ongoing share buyback program of up to SEK 500 million until March 2025 reflects management's confidence in the intrinsic value of the company and may drive earnings per share (EPS) growth by reducing the share count.

Nordnet Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nordnet's revenue will decrease by 0.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 49.4% today to 50.5% in 3 years time.
• Analysts expect earnings to reach SEK 2.8 billion (and earnings per share of SEK 11.5) by about December 2027, up from SEK 2.7 billion 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 23.8x on those 2027 earnings, up from 21.4x today. This future PE is greater than the current PE for the SE Capital Markets industry at 23.4x.
• Analysts expect the number of shares outstanding to decline by 0.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.69%, as per the Simply Wall St company report.

Nordnet Future Earnings Per Share Growth

Risks

• The potential decline in the net interest income due to lower future interest rates poses a risk to Nordnet's earnings, which the management estimates could reduce NII from SEK 2.6 billion to SEK 1.9 billion under stable volume conditions.
  
• The increase in competition from new players in Denmark and Sweden may lead to pressure on Nordnet's revenue and margins if the company needs to adjust its pricing strategy or increase spending on customer acquisition to maintain its market position.
  
• The relatively stable trading levels and lower trades per trading customer compared to pre-COVID levels could indicate a risk to future trading revenues if market conditions do not become more volatile to encourage more trading activity.
  
• The managerial focus on campaigns like the one that offered SEK 200 to new customers carries a high customer acquisition cost, which could detract from net margins if the lifetime value of these new customers does not justify the initial expense.
  
• The reliance on growth in passive funds, especially Nordnet-branded index funds, while stabilizing fund margins, could limit earnings potential if there is renewed customer interest in higher-margin active investment funds.

Valuation

• The analysts have a consensus price target of SEK 219.25 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 SEK 255.0, and the most bearish reporting a price target of just SEK 183.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be SEK 5.6 billion, earnings will come to SEK 2.8 billion, and it would be trading on a PE ratio of 23.8x, assuming you use a discount rate of 7.7%.
• Given the current share price of SEK 231.4, the analyst's price target of SEK 219.25 is 5.5% lower. 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.