It has been a disastrous year for the share price of Europe’s leading P2P lending provider TrustBuddy. Year-to-date the share is down 58%. Compared with November 2014, when TrustBuddy announced the acquisition of SME P2P lending provider Geldvoorelkaar and its intention to buy Prestiamoci, the share is down 64%.
TrustBuddy’s market cap is now down to SEK 183m, which can be compared to the combined price paid for both Geldvoorelkaar and Prestiamoci of around SEK 145m. That is a difference of a mere SEK 38m for the traditional TrustBuddy business, which created revenues of SEK 89m during 2014 (+47% y-o-y). The bottom-line was burdened by large investments in a new state-of-the-art IT system and administrative expenses and costs for lawyers in connection with the license application in Sweden etc., many of which have one-off character and/or contribute to future cost reductions.
As most of our readers know, we have repeatedly written about the success of Geldvoorelkaar (GVK), and the fact that this business by itself is worth at least SEK 1,50 per share when using similar valuation multiples to the likes of US P2P lending provider Lending Club. Since the beginning of 2015, we have also heard statements by the CEO Linus Lönnroth that TrustBuddy aims to become profitable during the year and that the company will be launching a SME P2P lending product also in the Nordics under the brand www.crowdfundingsociety.com. Furthermore, we have seen several insider transactions, from e.g. the CEO and also the COB, Simon Nathanson, who has started to build a position in TrustBuddy.
So what is driving down the share to such an extend? This seems to be the million dollar question at this point. Day after day, there seems to be an endless amount of shares on the sell-side and even if most days the overall turnover is rather limited (<500k), many retail investors have become scared (understandably) and thereby contributed to this downward spiral. While we struggle to find an obvious reason for this sell-off, we think we have at least pinpointed some of the sellers by looking at the recently published and updated shareholder list (as of March 30th, 2015). We note the following changes:
- Blackrock owns 7,7m shares which is down from around 10m shares before.
- River & Mercantile owns 8,1m shares, down from 14,8m shares.
- TCW Asset Management seems to have sold of its previous 2,3m shares
- Metzler seems to have sold its previous 1,2m shares
- Prestiamoci’s CEO Michele Novelli owns 100k shares. COB Daniele Loro owns 100k shares. In total, we can see Prestiamoci insiders owning 400k shares. Since the deal has not taken place yet, we assume that those individuals have bought their shares on the market, i.e. could be considered as a type of “insider” buying. In this context, we note that Prestiamoci’s shareholders are right now the only real winners of the share price slaughter in TrustBuddy. The deal, once approved and executed, is set up in a way that EUR 3,8m will be paid in shares of TrustBuddy, “according to an evaluation of the market that will be established shortly before the closing.” Compared with last November, Prestiamoci’s owners would receive almost three times as many shares today, following the poor share price development.
Obviously we have no insight as to why several institutions have decided to reduce their positions in TrustBuddy. Best case, it is connected to internal policies which can forbid funds to hold securities below a certain market cap and/or internal procedures to sell securities which have performed poorly over the last 12-months period. Either way, the constant selling leaves a bitter aftertaste.
Operationally, everything seems to go according to plan as recently confirmed by management at the company’s annual general meeting (April 15th) and our regular channel checks on GVK suggest. TrustBuddy is scheduled to report its Q1 2015 report on May 20th. Given the circumstances we could, however, not wait until then and reached out to the company’s CIO, Sebastian Hagman:
Nordic Investor (NI): What are your thoughts on the terrible share price performance so far this year?
Sebastian Hagman (SH): It is obviously disappointing to see such great negative moves in the share price. There have been a lot of changes recently within TrustBuddy and we hope to announce shortly a long-term strategy that our owners can find comfort in. We aim to build a sustainable business within the fintech space with a clear direction for the foreseeable future.
NI: The recent update of the shareholder list revealed that several institutions seem to unwind their positions. Have you been in contact with them and got a feeling as to why they are doing so?
SH: I don’t want to comment on specific investors but yes we have a close relationship to all our major investors.
NI: Have you heard anything from the Swedish Finansinspektionen regarding your application for a license for credit mediation? When are you expecting a decision?
SH: We have a dialog with FI but do not know when we could expect an answer.
NI: What’s your view on cooperations between P2P lending providers and banks? Lending Club recently announced such a cooperation with Citibank, Funding Circle has a cooperation with Santander in the UK. Are you in talks with any of the Nordic banks?
SH: A very good question and we would obviously welcome it, as we believe that we are not competitors but would benefit greatly to have a closer cooperation. That being said our current micro-credit product in the Nordics does not have much in common with the banks. However, our two other products (SME and long-term consumer lending) would work well together with Nordic banks. Currently, we are close to the Dutch banks and cooperate with regards to SME lending. As the market grows in the Nordics I am sure that the banks will welcome us, as it is a great compliment to the current market offering. Additionally, we are keen to open up a closer dialog with the governments as seen in many other countries where direct investments are being made to stimulate smaller businesses.
NI: Can you give us an update on the Prestiamoci acquisition? Will you be able to launch a long term consumer credit product in the Nordics during 2015?
SH: Unfortunately I cannot say more than there is no update so far on the potential acquisition. We aim to open up unsecured long-term consumer loans in the near future in our core markets. The long-term product will be a great compliment to our current customer base over 300,000 members. We see synergies that should help the product to grow in healthy numbers when launched.
NI: You recently announced the name of your SME business in the Nordics – Crowdfunding Society. Is there a chance that you will be able to launch the product earlier than previously anticipated? How is the demand from companies so far? How is the regulative situation when it comes to SME P2P lending in the Nordics? Will you require a special license?
SH: We are very happy to have announced our SME brand outside Netherlands. We have told the market that the product will be launched during H215 and we stick to that forecast. We are already receiving applications through our landing page of www.crowdfundingsociety.com and some are of high quality, which supports our strong view of the rather big potential to build a northern European SME crowdfunding platform. We are pleased to have such great experience from our Dutch colleagues (5 years, www.geldvoorelkaar.com ) who are assisting the group on the rollout. The regulation is different in each country and there will be need for a license in Denmark and Norway.
NI: When can we expect the appointment of a permanent new CEO?
SH: You will have to wait for the press release on this but I can say that we have some very high quality candidates.
NI: Given the significantly higher valuations of alternative financing companies such as Lending Club and OnDeck Capital in the US, but also Ferratum in Germany, would you consider a listing of Trustbuddy in another country in the future?
SH: I do not want to comment on the valuation of TrustBuddy. There is no strategy in place to list the group in a different location. Our focus is on daily business and not on high cost elements such as other listings. I believe our future numbers will speak for itself and we do not aim to promise anything that we cannot deliver on. Look out for the group strategy.