Yesterday, Europe’s leading P2P lending provider and one of our top-picks, TrustBuddy, published its Q4 2014 report. The recent months have been eventful for the company due to its important acquisitions, organizational restructuring and investments in a state-of-the-art IT system to improve quality and lower future operating costs. The latest example of the internal restructuring and streamlining is the fact, that TrustBuddy has transitioned to reporting in accordance with the new K3 regulatory framework in order to increase transparency.
TrustBuddy is still a young company and growing rapidly. Naturally, growth is always connected to costs which meant that the company reported a LBIT of SEK 35,8m for FY 2014. Given the extensive change that the company is undergoing, we think this is only natural. Talking to management, we get the impression that around SEK 16m were non-recurring costs which were related to, amongst others, costs for lawyers due to the license application in Sweden.
Digging into the numbers, we note that TrustBuddy reported revenues of SEK 85,1m for FY 2014, which marks a 47% increase y-o-y. (In Q4, revenues increased by 52% y-o-y.) The total amount lent reached SEK 827,7m for 2014, which is 57% compared to the previous year.
Also, as we have stated before, business is going very well for the recently acquired Dutch SME player Geldvoorelkaar (GVK), which was consolidated as of December 17th 2014. GVK increased its total amount lent by 67% during 2014 and reached a total of EUR 28,9m for the year. The year has started extremely strong for GVK and as of today, the company has lent out EUR 51,5m in total.
In his comment in connection with the Q4 results, TrustBuddy’s CEO Linus Lönnroth highlights the fact that 2014 was a transitional year for the company. Importantly, he states that he is “confident that our performance will be positive as a result of stringent cost control measures“. In other words, TrustBuddy is committed to report a profit for FY 2015. Mr Lönnroth also highlights the fact that the new IT platform will add increased efficiency to operations, which we believe will play an important role in becoming profitable this year. We get the impression that the new Board, which came to office during the fall 2014, is pushing into the right direction. The new chairman, Mr Simon Nathanson, has held such posts as President of Neonet and Executive Vice President of NASDAQ, in addition to which he served on the Board of Nordnet.
A very important comment in the Q4 report was Mr Lönnroth’s remark that TrustBuddy will launch its lending products for SMEs in new countries (Belgium and the Nordics to begin with), which we believe will be a major revenue driver going forward. SMEs, and specifically exciting new entrepreneurial startups, are experiencing extreme difficulty in securing financing through conventional channels. Besides the new SME product, TrustBuddy will also expand its portfolio of products geared towards private individuals, offering larger loans over longer periods. Also, lenders who are members of the TrustBuddy platform will be provided with better tools for analyzing their investments.
Outlook: In his outlook statement, CEO Lönnroth states that the company is of the assessment that the sharp growth in the P2P lending market will continue in 2015. After the successful IPO of US company Lending Club, followed by OnDeck Capital, the company believes that the P2P market will receive more attention than in the past from authorities, investors and consumers. It is the company’s assessment that other P2P companies, particularly in Europe, will initiate IPO proceedings. We believe this should further help to establish a sector valuation and highlight TrustBuddy’s extreme discount valuation at this point. TrustBuddy also states that it anticipates the interest from both major and minor investors to increase significantly, since they are seeking an attractive investment alternative in the current market which is nearing deflation. We find it very interesting to note that TrustBuddy also states in the report that it “anticipates increased attention from major global investors who want to gain ownership posts in the P2P sector in 2015, to secure a position for institutional lending. We cannot interpret in any other way than that TrustBuddy is already in contact with interested players. Any such announcement would of course be very positive for the share price development.
Conclusion: Yesterdays’ report did not provide any surprises as such, but we find many comments made by the company very encouraging. TrustBuddy is taking all the right steps towards growth, complying with regulatory requirements and building an efficient operation which is likely to become profitable already during 2015. As we noted in the previous comments, applying the same multiples that Lending Club is trading at to GVK, would give a fair value of SEK 1,70 for TrustBuddy’s Dutch SME business alone. We believe that TrustBuddy as a whole should easily be trading north of SEK 2, once investors skepticism towards the P2P concept fades in Sweden, or larger international investors decide to acquire a larger position in the company. We would also appreciate to see the new members of the Board and management buy additional shares at the current depressed share price levels, in order to show their confidence in their own plans and strategies.