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MarketScreener Homepage  >  Equities  >  Deutsche Boerse AG  >  FlatexDEGIRO AG    FTK   DE000FTG1111

FLATEXDEGIRO AG

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Flatex AG : Leading pan-European broker

04/16/2020 | 07:33am EST

Formerly known as FinTech Group AG and focused on the DACH region, Flatex is turning into a pan-European discount broker essentially catering to a retail clientele.

In a like manner with the recent investments initiated in our portfolios, the group should benefit from the peculiar current economic environment, for market intermediaries record peak earnings during volatile periods.

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Flatex got its start in 1997 as a BPO service provider for Bankenverband and E-Trade, developing full-scale IT infrastructure to support their brokerage operations. In 2005, it ventured on its own and received the "Best German online broker" distinction; a few years later, it secured a banking licence.

Headlines today are all about the takeover of DeGiro, the Dutch broker built upon the outstanding Interactive Brokers' infrastructure. On an enterprise value basis, the deal, funded by cash and the issuance of 7.5mil new shares at €25 per unit, values DeGiro at x4 revenue, x20 EBITDA and x25 net earnings.

The combined enterprise will weight €200mil in revenue, €50mil in EBITDA and €30mil in net income. The latter, by the way, may slightly overstate true earning power, as capital expenditures surpass actual amortization expenses  — unlike Interactive Brokers, Flatex capitalizes a large part of its technology investments.

Still, the German group will count among the top European contenders — along with SaxoBank, E-Toro or IB — as they rush toward scale. The bet is on individual transaction processing cost to decrease as the volume of orders increase, transforming otherwise low-margin commodity businesses into a moat-like service providers.

Expected completion of the merger is expected for Q2 2020. 27mil shares will be outstanding, vs. 20mil today. Current market price of €28 per share thus values the combined entreprise at €756mil. Since there will be no debt or cash in excess, the combined enterprise carries a similar price tag with standalone DeGiro, despite a much larger scale and scope of operations.

In effect, the combination will create the largest pan-European retail broker, serving 780,000 customers and sporting a 25% market share in Germany, 40% in Austria and 35% in The Netherlands. Trading flow will hit €200bn annually vs. €150bn today, and synergies at the infrastructure level should exceed €30mil.

Mid term management's ambitions are to drive revenue to €300mil and earnings up to €3 per share. Albeit no timeline was disclosed, a share price expansion will inevitably occur if this scenario comes to fruition. Superior execution at Flatex since the early days and superb mindshare across Europe at DeGiro give valid reasons to hope. Both brands carry pristine franchise value.

The huge amounts of money invested over the years in technology allow for a substantial competitive advantage. Few rivals can come close to charging Flatex's prices and earn a profit, for they lack the scale and automated infrastructure. Unless its service deteriorates to a dramatic extent, overtaking the incumbent low-cost provider will remain a suicide mission.

Another feature of the merger is the strong joint client growth rate of over 200,000 clients (at least in FY2019). The two groups maintain impressive organic client growth rate, above 30%. Low fees, a comprehensive product range — stocks, bonds, ETFs, funds, derivatives, FX, etc. — and access to 50 exchanges should lay the ground for continuous success.

Analysts — whose consensus is probed in real-time by MarketScreener — think no less, as they've just lifted their estimates and price targets for the years to come. This is exactly the momentum we were expecting to add the stock to our European portfolio.

Absent failed execution, which may always happen, the main risk lies in the poor visibility of liabilities and actual financing standing — as with all brokers. However, Flatex looks well-capitalized in every respect, while its banking licence — which means the group must comply to stringent capital ratios — provides relative safety.


© MarketScreener.com 2020
Stocks mentioned in the article
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ACCESS CO., LTD. 1.88% 811 End-of-day quote.-15.08%
AT HOME GROUP INC. -1.56% 18.86 Delayed Quote.248.00%
BEST INC. -4.22% 2.835 Delayed Quote.-46.76%
FLATEXDEGIRO AG 3.13% 56 Delayed Quote.121.63%
FLATEXDEGIRO AG 3.14% 55.8 Delayed Quote.125.89%
HOPE, INC. -2.41% 6080 End-of-day quote.88.82%
JUST GROUP PLC -2.86% 56 Delayed Quote.-27.03%
THE TORO COMPANY -0.36% 90.79 Delayed Quote.14.41%
WILL GROUP, INC. 0.91% 999 End-of-day quote.-20.21%
All news about FLATEXDEGIRO AG
02:30aFLATEXDEGIRO : initiates next growth phase in Germany
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02:11aFLATEXDEGIRO : initiates next growth phase in Germany
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11/24FLATEXDEGIRO AG : Release according to Article 40, Section 1 of the WpHG [the Ge..
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11/11FLATEX : Gets a Buy rating from Hauck & Aufhauser
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11/11FLATEX : Gets a Buy rating from Warburg Research
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11/10FLATEX : Goldman Sachs reiterates its Buy rating
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11/10FLATEX : Buy rating from Jefferies
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11/10FLATEX : Goldman Sachs reiterates its Buy rating
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11/10FLATEX : flatexDEGIRO with brilliant start into a new era of online brokerage in..
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11/03FLATEX AG : Release according to Article 40, Section 1 of the WpHG [the German S..
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Key data
Capitalization (EUR)
1 524 495 672
Capitalization (USD)
1 822 033 790
Net sales (EUR)
131 952 000
Net sales (USD)
157 797 438
Number of employees
544
Sales / Employee (EUR)
242 559
Sales / Employee (USD)
290 069
Free-Float
52,5%
Free-Float capitalization (EUR)
799 660 220
Free-Float capitalization (USD)
955 731 111
Avg. Exchange 20 sessions (EUR)
32 975
Avg. Exchange 20 sessions (USD)
39 434
Average Daily Capital Traded
0,00%
Income Statement Evolution
EPS & Dividend
EPS Revisions
Revenue Revisions
Consensus
Sell
Buy
Mean consensus BUY
Number of Analysts 8
Average target price 56,14 €
Last Close Price 56,00 €
Spread / Highest target 10,7%
Spread / Average Target 0,26%
Spread / Lowest Target -8,93%
Consensus revision (last 18 months)