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#TrustBuddy: Steep discount to US peers $LC, $ONDK following #M&A

TrustBuddyLogoOn November 13th, 2014, Europe’s leading P2P lending provider TrustBuddy announced the acquisitions of SME P2P lending provider Geldvoorelkaar and Italian Prestiamoci, focused on long-term consumer credit.

Prestiamoci1As we could report last week, business is going really well for Geldvoorelkaar and the SME business is set to be a major earnings contributor for TrustBuddy in the future.

Today, we take a closer look at Prestiamoci, which focuses on personal lending for such purposes as purchasing an apartment, car, organizing a marriage or paying for educational fees. Prestiamoci has established a licensed P2P platform in the highly regulated Italian market.

There is no FCA-like regulatory body in Italy – instead Prestiamoci is authorized by the Bank of Italy. In fact, it is the only Italian startup having a license, as holding company, released by the Bank of Italy for the management of an online P2P lending platform.  Furthermore, the acquisition is conditional on Prestiamoci obtaining EEA-wide PSD license approval, enabling European roll-out.

Said Prestiamoci’s Stefano Miari in an interview with www.altfi.com: ” (Italy) is a huge market where existing operators are not innovative. There is no one with a real online offer. And usually in Italy, a lot of people are excluded from Credit (more than 50% of households due to low usury rate) and that banks and consumer credit specialists typically do not link rates to credit risk : every customer for a same purpose and duration loan get the same rate (or close to the same rate) and if the customer is risky he is just not given the loan.”

At the end of June 2014, Prestiamoci had reportedly around 450 active lenders and had EUR 1.7 million in capital lent. Looking at Prestiamoci’s website today, we note that the company lists 546 active lenders and EUR 2.1m in capital lent. So the number of active lenders has increased some 21% over the last 6 months and the amount of capital lent is up some 24% over the same period of time.

Prestiamoci2So far, Prestiamoci is only active in Italy but TrustBuddy expects to rollout a consumer instalment loan product in new markets in 2015, and envisages 80% of revenue from this new product from the Nordic markets.  In its presentation material published in connection with the acquisition. TrustBuddy has a base case revenue target for Prestiamoci of EUR 1.7m (SEK 16m) for 2015 and EUR 3.2m (SEK 30m) for 2016:

Prestiamoci3In combination with the base case revenue forecast for Geldvoorelkaar of EUR 5.2m (SEK  49m) for 2016, the recent acquisitions are expected to add roughly SEK 80m to TrustBuddy’s topline by 2016 (base case). Looking at the company’s bull case forecast, this number would be closer to SEK 110m at current exchange rates. For the first 9-months of 2014, TrustBuddy itself reported revenues of SEK 87m. In a trading update in November, the company also said that October revenues came in at SEK 10m, so we believe it is a conservative guess that FY 2014 revenues for TrustBuddy will be at least SEK 120m, which would mark an increase of 48% y-o-y. Prudently assuming annual growth of 20% going forward (which we believe is too conservative) would imply a 2016 revenue scenario of SEK 173m for TrustBuddy (excluding the acquisitions). Including Geldvoorelkaar and Prestiamoci, this would imply 2016 revenues of SEK 253m in a base case and SEK 283m in a bull case scenario. (The numbers for 2015 are SEK 181m and SEK 205m respectively)

Obviously, the enormous potential and strong growth should logically be incorporated in the valuation of the company. For the recently IPOed US alternative financing providers Lending Club (LC) and On  Deck Capital (ONDK), there are analyst consensus expectations available for the year 2015, so in order to compare TrustBuddy with its listed peers, we’ll have a look at their multiples:

According to data provided by Yahoo Finance, analysts expect Lending Club to report 2015 revenues of USD 375m. In combination with an enterprise value of USD 9.4bn, this implies a 2015 EV/Sales multiple of 25x. For On Deck Capital, analysts expect 2015 revenues of USD 249m. In combination with an enterprise value of USD 1.45bn, this implies a 2015 EV/Sales multiple of 5.8x.

In comparison, the current market cap of TrustBuddy is SEK 360m and no interesting bearing debt at the end of Q3 2014, imply a 2015 EV/Sales multiple of 2x in the conservative base case and 1.8x in the bull case (but still with conservative assumptions for TrustBuddy stand-alone). This leaves TrustBuddy tremendously undervalued compared to its listed peers and we believe that it is only a matter of time until this mispricing will disappear. TrustBuddy shares easily have the potential to triple in value, once positive news emerge (e.g. license in Sweden) and the market starts to realise the value of the recent acquisitions.

Nordic Investor

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