Following rapid growth in Norway, Komplett Bank (KOMP) recently entered the highly profitable Finnish consumer finance market. The bank now plans to widen its product offering and to enter Sweden in Q1’18 – further supporting growth and diversification. In connection with the announced IPO in Q4’17, we have included an equity raise of NOK 500m, but still estimate an increase in the EPS from NOK 1.7 this year to NOK 3.9 for 2020. While regulatory changes in Norway could curb the volume development somewhat, very limited earnings growth is currently reflected at 6x P/E’19e in our view.
Exposed to a highly profitable Nordic consumer finance market
Komplett Bank (KOMP) is a pure consumer finance bank exposed to the highly profitable and growing Nordic market. Since the start-up in 2014, the bank has experienced rapid loan growth in the Norwegian market – well ahead of the original business plan. The bank expanded into Finland in Q1’17 and recently entered into a Point-of-Sales (POS) Finance agreement with the online retailer Komplett Group. It now plans for expansion into Sweden in Q1’18 and also expand its current product offering to new geographies – further supporting growth and diversification. On the back of further strong growth in Norway, supported by new markets and products, we estimate an increase in the loan book from currently NOK 5bn to NOK 13bn at year-end 2020.
NOK 400-500m equity raise and IPO on Oslo Børs
While the strong profitability supports high organic growth, the bank has communicated that it plans to raise NOK 400-500m of new equity to fund the expected strong volume development going forward. We expect the bank to do this in connection with its listing on Oslo Børs in Q4’17. Including NOK 500m of new equity and assumed pay-out ratios of ~50% for 2019-20, the estimated Common Equity Tier 1 (CET1) ratio falls towards 17%, which we consider a reasonable capital level going forward.
Pricing reflects limited earnings growth
Including the assumed NOK 500m equity raise, we factor in an increase in the EPS from NOK 1.7 this year to NOK 3.9 for 2020. This corresponds to ROEs of ~30%, in line with our estimates for Bank Norwegian (NOFI, Buy, TP NOK 100). While new regulations in Norway could curb the volume development slightly going forward, very limited growth is in our view currently reflected in the share at 6x P/E’19e, lower than e.g. NOFI at 10x.
http://www.paretosec.com/upload/files/20171016%20KOMP%20Pre-IPO%20report.pdf