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#TrustBuddy: Winds of change

P2P lending provider TrustBuddy just announced a major update on its corporate strategy. Simultaneously, the company also pre-announced its Q1 2015 numbers which were supposed to be released on May 20th.

Going forward, TrustBuddy will predominantly focus on the two product segments – business
loans (SME) as well as long term consumer loans. TrustBuddy’s newly developed
platform for long term consumer loans is anticipated to be implemented in late
2015. Parallel to this implementation the current short-term offering will be
transferred to the new platform and gradually be phased out in its current
state and business model.

The geographic focus short and mid-term are the Nordic countries together with
Netherlands and Belgium. Lending in Poland and Spain will be phased out
(representing approximately 1% of TrustBuddy revenue). Due to less focus on
expansion into new markets TrustBuddy will be able to target its resources to
core markets and thereby improve results faster and create better conditions
for growth and profitably.

The strategy entails a cost reduction program of minimum SEK 4m per month when
fully implemented (current cost base will be reduced by approximately a third).
Cost reductions will be done by automation and centralization of certain
operational functions that will reduce the workforce significantly. The
improvements in the platform allow the company to make such large reductions.
Full effect of cost reductions is anticipated to be present in Q4 2015.

Simon Nathanson, Chairman of TrustBuddy AB, comments on the new strategy;

There is a substantial need for restructuring in order for TrustBuddy to
become more efficient in its operations. After working actively with the
company management, I am certain that the new strategy will pave a very
positive future for the group. Through our strong position with our operations
in the Netherlands (Geldvoorelkaar), I am certain we will position ourselves as
a leader within SME peer-to-peer lending in Northern Europe.”

In connection with the major changes announced above, TrustBuddy states that it expects to announce lent out volume close to SEK 350m, SEK 26m of sales, SEK 42m of operational costs and an
EBITDA of SEK -16m during Q1 2015. The implied revenue increase is 34% y-o-y.

TrustBuddy facilitated business loans (SME) of approximately SEK 76m and revenues were close to SEK 5m (approx. 20% of group revenues). It is important to note, that Q1 is seasonally the clearly weakest quarter for the SME business. Operational costs during the period were SEK 5m and EBITDA came in at SEK 0m. The SME product has originated over SEK 520m since start of operations in 2010.
TrustBuddy says that it is pleased with the developments of the SME product and anticipate
further growth in its domestic market along with planned market expansion in
the Nordics.

TrustBuddy’s consumer product facilitated loans of approximately SEK 273m and
revenues of SEK 21m. Operational costs during the period were close to SEK 37m
and the EBITDA came in at SEK -16m. Revenues came in as expected as TrustBuddy
anticipates limited growth in its current offering until the consumer product
is enhanced with offerings of long-term loans, during H215.


We see today’s announcement as an important and overdue evolution of the company and a big step towards sustainable profitability. The short-term consumer lending product has been a problematic one, given its tricky end-customer group and public bad-will it created at times. We believe the strategic move should be very welcomed by regulatory bodies around Europe, which should make it easier to get the licenses needed for TrustBuddy. We also welcome the decision to leave countries that generated almost zero in revenues but contributed to significant overhead cost. TrustBuddy says that it expects the full effect of the cost reductions to be seen by Q4 2015, i.e. operational costs are expected to be SEK 12m less by then. This should imply that the company will be profitable by then. A quick back-on-the-envelope calculation shows:

  • Assuming similar y-o-y growth in Q4 compared with Q1 should generate Q4 revenues of SEK 33m
  • Operational costs of SEK 42m reduced by SEK 12m, leave us with Q1 operational costs of SEK 30m
  • Consequently, Q4 2015 would imply to SEK 3m

These numbers are very conservative, since TrustBuddy will have started its SME operations in the Nordics by then. We also hope that a penetration of the Belgian market might have started by then, since Geldvoorelkaar has had plans to do so for quite some time. Elsewhere, it is our interpretation, that the planned acquisition of Prestiamoci might not take place after all. Originally announced in November 2014, the deal was supposed to be done by April 2015. With the new clear regional focus on the Nordics and Netherlands and Belgium, it is hard to see how Prestiamoci should fit in at this point.

A clear focus and commitment both in terms of product offering and regional focus and a clear plan for sustainable profitability should be exactly what the market has been waiting for. We remain bullish on TrustBuddy and see considerable upside in the share price.

Nordic Investor

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