Avarda Bank (AVARDA) Q4 2019 earnings summary

Executive summary

• FY2019 loan portfolio grew 46% to SEK 6,496m; operating profit rose 16% to SEK 289.4m and net profit increased 16% to SEK 221.9m.

• Excluding the 2018 comparability item, operating profit rose 26%; adjusted EPS increased 25% to SEK 10.01 and adjusted ROE was 30.6%.

• Growth was driven by Consumer Lending in Norway, Finland and the Baltics, alongside expansion in German credit cards and new Ecommerce Solutions agreements.

Financial highlights

• Operating income increased 23% to SEK 768.9m; interest income rose 24% to SEK 813.1m and net fee and commission income increased 21% to SEK 62.1m.

• Operating expenses rose 18% to SEK 290.9m; net loan losses increased 26% to SEK 188.6m, while the loan loss ratio improved to 3.4% from 3.9%.

• Q4 operating profit fell 12% to SEK 75.3m as reported, but rose 16% excluding the 2018 comparability item; adjusted EPS increased 17% to SEK 2.58.

Outlook and guidance

• FY2020 targets: EPS of at least SEK 14.50 and cost/income ratio below 35%; achieving the EPS target requires continued high growth while maintaining profitability.

• Finnish and Norwegian Consumer Lending and German credit cards were expected to support growth; average-card income in Germany takes ~1 year to peak.

• Consumer Lending income-margin decline was expected to moderate in 2020; improved credit quality was expected to support a more favourable relationship between income and loan losses.

• Baltic sales mix was shifting toward purpose loans, including ecommerce and car loans.