Axactor : in-depth research by ABG Sundal Collier

Equity Research - 07 June 2022 06:52 CET

Axactor

Expect an uplift in the NPL market

• NPL portfolio purchases showing improvement
• Axactor's NPL platform scales better than Nordic peers
• We estimate ROE of ~11% in 2024e

Several trends point to an uptick in the NPL market

The total value of non-performing loans (NPLs) in the EU has decreased steadily since 2014, with the avg. NPL ratio declining by 1.8pp over the last 3 years (to 2.1% in Q4'21). There are large variations between countries, with the biggest drop seen in the "worst-in-class" countries - for Axactor, this means Italy and Spain. Although there has been a steady decline in the NPL stock, several market trends point to an uplift:

1. more NPLs arising during the COVID-19 pandemic, ii) lower economic growth due to the war in Ukraine, iii) regulatory changes supporting increased supply in secondary markets, iv) increased amount of Stage 2 loans. Looking at investments for top collectors, we observe an upward trend in recent quarters towards 2019 levels. Given the supportive market trends, we believe this will continue throughout 2022-23.

A cost leader with improving collections and funding

Axactor still stands out in terms of the cost/income ratio compared to Nordic peers, with peers being at least ~7pp higher than Axactor. The company's collection rate increased to 100% for Q1'22, vs. an avg. for peers of ~104%. For funding, we estimate Axactor's funding cost at 6% vs. peers at ~5%, likely explained by its short history and size. We believe it can lower its funding costs by ~0.5pp (2021-24e) through refinancing and its recent efforts to clean its books. Furthermore, we increase our '23e-'24e NPL purchases by 10-20%, given an expected increase in supply, raising gross collections by 1-3%. We raise costs in '22e-'24e by 2-3% on higher expected inflation, reducing '22e-'23e cash EBITDA margins by ~1%. We lower funding cost in '24e on expected refinancing.

'22e P/BV of 0.5x; ~50% below hist. avg.

The '22e P/BV of 0.5x is ~50% below the historical avg. and ~50% below peers. We expect ROE to increase from -9% in '21 (~8% norm.) to ~11% in '24e, driven by higher cash-EBITDA, lower financials, and a stabilised tax rate (25%). Our fair value range is NOK 6-17/share.

Analyst(s): [e-mail], [phone] [e-mail], [phone]

EURm	2020	2021	2022e	2023e	2024e
Sales	165	156	240	255	276
EBITDA	57	43	114	118	131
EBITDA margin (%)	34.5	27.4	47.6	46.1	47.6
EBIT adj	44	33	105	109	122
EBIT adj margin (%)	26.5	21.1	43.9	42.6	44.3
Pretax profit	-7	-22	52	53	67
EPS rep	-0.08	-0.10	0.09	0.12	0.17
EPS adj	0	-0.04	0.13	0.13	0.17
Sales growth (%)	-15.1	-5.4	54.2	6.2	8.3
EPS growth (%)	-177.9	-22.6	188.4	38.4	34.0

Source: ABG Sundal Collier, Company data

Reason: In-depth research

Commissioned research

Not rated

Estimate changes (%)
	2022e	2023e	2024e
Sales	-0.1%	0.4%	2.5%
EBIT (rep)	-2.2%	-3.3%	2.3%
EPS (rep)	3.2%	-3.5%	5.8%
Source: ABG Sundal Collier
Share price (NOK)	06/06/2022	6.4
Fair value range (per share)		6.0-17.0
Financials, Norway
ACR.OL/ACR NO
MCap (NOKm)			1,919
MCap (EURm)			191
Net debt (EURm)			890
No. of shares (m)			302
Free float (%)			54
Av. daily volume (k)			2

Next event

Q2 report: 18 Aug

Performance

30.0

25.0

20.0

15.0

10.0

5.0

0.0

Aug 19

Dec 19

Aug 20

Dec 20

Jun 21 Aug 21

Oct 21 Dec 21

Jun 19

Oct 19

Feb 20

Apr 20

Jun 20

Oct 20

Feb 21

Apr 21

Feb 22 Apr 22

Axactor

OSE GI

	1m	3m	12m
Absolute (%)	9.4	15.0	-41.7
Source: FactSet
	2022e	2023e	2024e
P/E (x)	7.1	5.1	3.8
P/E adj (x)	5.0	4.8	3.8
P/BVPS (x)	0.46	0.42	0.41
EV/EBITDA (x)	9.5	9.8	9.4
EV/EBIT adj (x)	10.2	10.6	10.1
EV/sales (x)	4.50	4.51	4.46
ROE adj (%)	9.6	9.2	10.8
Dividend yield (%)	0	9.8	13.1
FCF yield (%)	-15.5	-6.8	-4.6
Lease adj. FCF yld (%)	-15.5	-6.8	-4.6
Net IB debt/EBITDA	7.8	8.1	7.9
Lease adj. ND/EBITDA	nm	nm	nm

Please refer to important disclosures at the end of this report

This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to

constitute an acceptable minor non-monetary benefit (i.e. not investment research) as defined in MiFID II.

Axactor

Company description

Axactor is a pan-European debt collector with operations in Finland, Germany, Italy, Norway, Spain and Sweden. Headquartered in Oslo, Norway, Axactor was established in late 2015 and has grown to become one of the ten- largest players in the industry, with support from its cornerstone- and co-investor Geveran. Its core business areas are purchased debt and 3PC (third-party collection), focusing on well-developed NPL markets with a legal environment beneficial for collection. Through its streamlined "One Axactor" operating model, it has developed a scalable, no legacy and low-complexity NPL platform.

Risks

Investment risk, macro risk and regulatory risk are the biggest risks in the Axactor investment case. We see investment risk as the largest risk as we estimate that the company will have high capex going forward, and an investment into a 'bad' portfolio and/or company could have a detrimental impact on earnings in the coming years. Furthermore, changes in the macro environment could affect cash collection and the 3PC business.

Annual sales and adj. EBIT marginEURm

300								50.0
250								40.0
							30.0
200
							20.0
150								10.0
100								0.0
								-10.0
50								-20.0
0								-30.0
2016	2017	2018	2019	2020	2021	2022e	2023e	2024e
	Sales (LHS)			Adj EBIT margin % (RHS)

Source: ABG Sundal Collier, Company data

EPS estimate changes, 2022e, EUR

0.24
0.22
0.20
0.18
0.16
0.14
0.12
0.10
0.08
0.06
0.04
0.02	21		21		21		21		21		21		21			22		22		22		22		22
Jun	-	Jul	-	Aug	-	Sep	-	Oct	-	Nov	-	Dec	-	Jan	-	Feb	-	Mar	-	Apr	-	May	-
								ABGSC
Source: ABG Sundal Collier, FactSet

EPS estimate changes, 2023e, EUR

0.28
0.26
0.24
0.22
0.20
0.18
0.16
0.14
0.12
0.10
0.08
21		21		21		21		21		21		21		22		22		22		22		22
Jun	-	Jul	-	Aug	-		Sep	-	Oct	-	Nov	-	Dec	-	Jan	-	Feb	-	Mar	-	Apr	-	May	-
									ABGSC
Source: ABG Sundal Collier,	FactSet

7 June 2022

ABG Sundal Collier

2

Axactor

Table of contents
Supporting charts ...........................................................................................	6
The NPL market .............................................................................................	7
Competitive position .....................................................................................	13
Valuation ......................................................................................................	17
Appendix 1: Axactor at a glance...................................................................	22
Appendix 2: Purchased debt explained........................................................	27

7 June 2022

ABG Sundal Collier

3

Axactor

Estimate revisions

Estimate revisions		New			Old		Chg %	Chg	Chg %	Chg	Chg %	Chg
EURm	2022e	2023e	2024e	2022e	2023e	2024e	2022e	2022e	2023e	2023e	2024e	2024e
Gross collection	293	349	399	293	347	387	0%	0	1%	2	3%	11
Third-party revenue	57	60	62	57	60	61	0%	0	0%	0	1%	0
Gross revenues	350	409	460	350	406	448	0%	0	1%	2	3%	12
Net Revenue	240	255	276	240	254	270	0%	0	0%	1	2%	7
Operating expenses	-126	-137	-145	-124	-133	-141	2%	-2	3%	-5	3%	-4
EBITDA reported	114	118	131	117	121	129	-2%	-2	-3%	-4	2%	3
EBITDA-margin (%)	48%	46%	48%	49%	48%	48%		-0.9%		-1.6%		-0.2%
EBIT (reported)	106	109	122	108	112	120	-2%	-2	-3%	-4	2%	3
EBIT-margin (%)	44%	43%	44%	45%	44%	44%		-0.9%		-1.6%		-0.1%
Net profit	26	37	50	25	39	47	3%	1	-3%	-1	6%	3
Net profit (excl. REOs)	37	40	50	39	42	47	-4%	-1	-6%	-2	6%	3
EPS	0.09	0.12	0.17	0.08	0.13	0.16	3%	0.00	-3%	0.00	6%	0.01
EPS (excl. REOs)	0.12	0.13	0.17	0.13	0.14	0.16	-4%	0.00	-6%	-0.01	6%	0.01
ROE (norm.)	10%	9%	11%	10%	10%	10%		-0.8%		-0.6%		1.0%
Cash EBITDA (excl. REOs)	224	271	315	227	274	308	-1%	-2	-1%	-2	3%	8
Cash EBITDA margin (excl. REOs)	64%	66%	69%	65%	67%	69%		-0.6%		-0.9%		-0.1%
ERC (reported NPL + est REO)	2,587	2,768	2,968	2,586	2,723	2,824	0%	0	2%	45	5%	144
CAPEX	238	264	300	235	240	245	1%	3	10%	24	22%	55
DPS	0.00	0.06	0.08	0.00	0.00	0.00		0.00		0.06		0.08

Source: Company data, ABG Sundal Collier

ABGSCe vs. IR-collected consensus

		ABG			IR consensus			Difference
EURm	2022e	2023e	2024e	2022e	2023e	2024e	2022e	2023e	2024e
Gross collection	293	349	399	286	340	371	2%	3%	8%
Other revenue	57	60	62	57	61	64	1%	-3%	-5%
Gross revenue	350	409	460	343	401	435	2%	2%	6%
Portfolio amortisation & revaluation	-110	-154	-184	-110	-146	-163	0%	5%	13%
Net revenue	240	255	276	233	256	272	3%	0%	1%
Operating expenses	-126	-137	-145	-125	-136	-145	1%	1%	0%
EBITDA reported	114	118	131	108	119	128	5%	-2%	3%
EBITDA margin	48%	46%	48%	47%	47%	47%	1%	-1%	1%
EBIT	105	109	122	100	110	119	6%	-2%	3%
Net financials	-53	-55	-56	-53	-55	-57	2%	0%	-2%
Net profit (cont. operations)	37	40	50	32	41	46	15%	-2%	9%
Discontinued	-11	-3	0	-8	-2	0	-51%	-39%
Cash EBITDA	244	273	315	238	260	286	3%	5%	10%
Cash EBITDA margin	70%	67%	69%	69%	65%	66%	1%	2%	3%

Source: ABG Sundal Collier, IR collected consensus 09 May'22

7 June 2022

ABG Sundal Collier

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Axactor

Q2e forecast vs. consensus

Q1'22: Our forecasts vs. Consensus

			q-o-q		y-o-y		Consensus
EURm	Q2'22	Q1'22 growth	Q2'21 growth	Q2'22	Deviation
Gross collection	73.2	64.0	14%	69.0	6%	73.0	0.2	0%
Third-party collection	14.9	13.2	13%	12.9	16%	14.6	0.3	2%
Gross revenues	88.1	77.2	14%	81.9	8%	87.6	0.5	1%
Portfolio amortisation & revaluation	-27.2	-21.0	29%	-29.3	-7%	-29.5	2.2	-8%
Net Revenue	60.9	56.2	8%	52.6	16%	58.1	2.8	5%
Total operating cost	-32.2	-29.2	10%	-28.0	15%	-32.0	-0.1	0%
EBITDA reported	28.7	27.0	6%	24.6	17%	26.1	2.6	10%
EBITDA-margin (%)	47%	48%	-2%	47%	1%	45%	2%	5%
Depreciation and amortisation	-2.2	-2.1	6%	-2.3	-3%	-2.3	0.0	-1%
EBIT (reported)	26.5	24.9	6%	22.3	19%	23.8	2.6	11%
EBIT-margin (%)	43%	44%	-2%	42%	2%	41%	2%	6%
Net financials	-13.4	-13.1	2%	-11.8	13%	-13.1	-0.3	2%
Net profit to equity holders (excl. REOs)	9.8	7.9	23%	10.1	-3%	7.6	2.1	28%
Discontinued operations	-3.2	-1.6		-2.5	29%	-2.4	-0.9	36%
Net profit to equity holders	6.6	6.6	-1%	7.2	-8%	5.3	1.3	24%
EPS	0.02	0.02	16%	0.01		0.02	0.00	24%
EPS (excl. REOs)	0.03	0.03	23%	0.03	-3%	0.03	0.01	28%
ROE adj (excl. REOs) (%)	6.6%	6.8%	-4%	6.9%	-4%	6.9%	0%	-5%
Cash EBITDA (excl. REOs)	55.9	48.1	16%	54.0	3%	55.5	0.4	1%
Cash EBITDA margin (%) (excl. REOs)	63%	62%	2%	66%	-4%	63%
CAPEX	50.0	79.6	-37%	28.9	73%
ERC (ex. REOs)	2,534	2,259	12%	2,119	20%

Source: Company data, ABG Sundal Collier, Company collected consensus on 09 M ay'22

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ABG Sundal Collier

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