Hi @Siirala
Thanks, good to hear that the analysis is of interest!
That is a relevant question, and it is certainly influenced by many factors. One clear reason is, of course, exactly as you mentioned, the reputation as a payday lender. Microloans have now been divested, and the loan portfolio has become significantly less risky over the years. However, interest rate caps continue to cause trouble, as has been visible in the Consumer Banking figures lately, which highlights the business model’s sensitivity to certain regulatory changes compared to traditional banks. The stock’s poor liquidity is also, as you mentioned, naturally another factor. Because of this and the relatively low market capitalization, it is surely quite difficult for institutions to invest in the company. And as has been discussed here before, Germans are not the most active retail investors (and, at least reputation-wise, are quite risk-averse). Other reasons could be an organizational structure that is quite different from the company’s other peers, which slightly weakens the transparency for balance sheet analysis. I personally believe that better transparency could have a positive impact on investors’ perception of the risk level. The fact that Multitude Bank is registered in Malta may also affect the interest of some.
So, in that sense, I do see why the company is viewed as risky, which affects the required rate of return and the acceptable valuation. In a way, this has also been taken into account in our analysis, but despite that, the valuation is indeed very low at the moment.
But overall, if profit growth continues along the path of the company’s guidance or our forecasts, the value should eventually follow. Especially if growth comes from more capital-light fee income, this should, in my opinion, support an acceptable valuation. Sortter is an interesting new piece here. It would, of course, be good if SME Banking could be made profitable, as it has caused losses for the company for a long time. In that case, profits would also come from different areas, much more diversified than at present. Increased value could then contribute to feeding liquidity, further supporting the valuation.
As peers, I have used European digital banks and fintechs, but the peer group has shrunk slightly due to data availability and some delistings. I need to investigate in the future if more new peers can be found (or if data availability for certain companies has improved, affecting e.g. analyst coverage, etc.). Multitude has quite a lot of different businesses, so one could also look for separate peers for different segments (for example, the payment system business of Wholesale Banking). But then again, this is quite small in the scale of the group, so it is not necessarily reasonable to compare the entire Multitude group to such a business.
I don’t see why the stock exchange wouldn’t be a good place just because of the low valuation. It should correct with profit growth, and at the same time, it can be utilized in value creation, for example, by buying back own shares (although, apparently, regulation makes this difficult). A PE buyout is not an impossible scenario, although it is difficult to assess these, and I would not consider it the base scenario. If the company were to be taken private, founder Jorma Jokela would need to be strongly involved, as he owns the majority of the firm. The company’s goals (including an exceptional market cap target) are a few years away, so I assume that the full focus is now on achieving them, and then we will see how the market values the company.