Tessin: Lower loan volumes delay profitability target

Research Update

2023-11-06

07:30

Redeye updates its estimates and valuation after reviewing Tessin's Q3 report, which showed somewhat softer figures than expected. Consequently, we have revised down our estimates and valuation, now projecting Tessin to reach profitability in mid 2024.

Anton Hoof

Q3 results – Sales and profitability slightly below expectations

Tessin’s sales for the third quarter amounted to SEK11.2m, a y/y decrease of 22% and below our expectations of SEK11.9m. The value of brokered loans reached SEK130m, which was significantly lower than our estimate of SEK220m. The arrangement fee amounted to 7.7%, higher than our expectations of 5%, and offsetting the impact of the lower loan volume. Looking at the profitability, Tessin’s EBITDA amounted to SEK0.5m and EBIT to SEK-0.8m, which is slightly below our estimates of SEK0.8m respective SEK-0.6m. The deviation was primarily due to lower sales, while Opex came in below our expectations. The strong cost control and increased arrangement fee are notable highlights of the quarter, with the lower loan volume being the primary drawback.

Preparing for recovery in the capital market

In waiting for the risk appetite to come back, Tessin continues to have solid cost control while increasing prices to offset the lower loan volume. Capital remains the limitation of growth, which we view as preferable compared to restrictions from developers, considering the potential for a faster resurgence in risk appetite among investors. We expect a fast uptick in loan volumes and revenues if Tessin were to secure capital from a large institutional player. This was evident last year, with Tessin achieving record loan volumes in Q2-Q4 2022.

Valuation

Following the Q3 report, we have adjusted our sales estimates for 2023e-2025e, lowering them by approximately 11-4% due to lower loan volumes. Although we are taking down our loan volume estimates quite significantly, we calculate with a higher arrangement fee, mitigating some of the impact of the decreased volume. Due to higher interest rates, we have increased the risk-free rate from 2.5% to 3% and our WACC from 12.5% to 13%. We have also considered further dilution, impacting our fair value range and base case negatively. Our new base case stands at SEK0.35 (SEK0.5), and the fair value range is SEK0.05-0.6 (SEK0.1-0.8).

Key financials

SEKm202120222023e2024e2025e
Revenue Growth18.5%14.6%-13.1%21.6%32.1%
EBITDA-75.7-30.0-1.67.719.1
EBIT-82.2-38.3-7.62.413.1
EBIT Margin-186%-75.5%-17.3%4.4%18.5%
Net Income-82.7-44.9-9.60.7211.4
EV/Revenue2.41.01.00.80.5
EV/EBITDA-1.4-1.6-26.55.71.8
EV/EBIT-1.3-1.3-5.718.72.6

Third Quarter – Sales and profitability slightly below expectations

Tessin’s Q3 report came in somewhat lower than our estimates in terms of sales and profitability. Net Sales amounted to SEK11.2m, a y/y decline of 22%. This is somewhat lower than our expectations of SEK11.9m. Looking at the profitability, Tessin’s EBITDA landed on SEK0.5m and EBIT on SEK-0.8m, which is slightly below our estimates of SEK0.8m respective SEK-0.6m. The deviation was primarily due to lower sales where Opex came in below our expectations.

Disclosures and disclaimers

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