Avarda Bank (AVARDA) Q2 2020 earnings summary

Executive summary

• H1 operating income rose 16% YoY to SEK 423.6m, while operating profit fell 17% to SEK 113.6m and net profit was SEK 87.8m.

• Q2 operating income rose 11% YoY to SEK 210.3m; operating profit was SEK 70.4m versus SEK 70.6m, with growth in Ecommerce Solutions and Credit Cards alongside restrictive Consumer Lending.

• Loan portfolio reached SEK 7,046.7m, up 8% since year-end; Q2 loan-book growth was 1% QoQ and 25% YoY, resuming in June.

Financial highlights

• H1 net interest income rose to SEK 382.7m from SEK 334.4m; net fee and commission income rose to SEK 40.5m from SEK 30.2m.

• H1 operating expenses increased 16% to SEK 160.2m; net loan losses rose 65% to SEK 149.8m, including the SEK 30m Covid-related provision.

• H1 net profit was SEK 87.8m versus SEK 105.1m; EPS was SEK 3.92 versus SEK 4.73. Q2 net profit was SEK 53.5m versus SEK 54.6m; EPS was SEK 2.41 versus SEK 2.45.

• Q2 operating expenses rose 12% YoY and net loan losses rose 27% YoY; operating profit was SEK 70.4m versus SEK 70.6m a year earlier.

• Excluding the Q1 SEK 30m macroeconomic provision, H1 operating profit was SEK 144m versus SEK 136m in H1 2019; rolling 12-month EPS was SEK 10.29, or SEK 9.19 including the provision.

Outlook and guidance

• Priorities were portfolio management, liquidity and ROE; six-month ambition was to grow market share, focusing on Ecommerce Solutions, Credit Cards and Nordic Consumer Lending.

• Consumer Lending new lending was reduced 36% in Q2 versus Q1; restrictions in Norway and Finland eased by end-May, and portfolio growth resumed in June.

• The SEK 30m future-credit-loss provision remained unchanged and was assessed as sufficient; adverse probability-of-default and loss-given-default effects were anticipated from H2.

• The 2020 EPS target of at least SEK 14.50 was abandoned; the cost/income target remained below 35%, with new financial targets to follow once the macro outlook stabilised.