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: i) 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
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