Banca Sistema (BST) Q3 2024 earnings summary

Executive summary

• Revenues and total income grew 19% year-on-year in the first nine months, driven by strong factoring and pawn loan growth, with adjusted net interest income up 11% to €55.7 million and adjusted net profit up 27% to €15.8 million, excluding systemic charges.

• Factoring turnover rose 12% year-on-year to €4,000 million, pawn loans outstanding increased 9% to €128 million, and CQ loan turnover grew 16% year-on-year, though CQ outstanding declined 10% due to prepayments and disposals.

• Total assets increased by 9% year-on-year to approximately €4.8 billion, supported by an expanded government bond and securities portfolio.

• Retail funding accounted for 69% of total funding, up from 66% a year ago.

• The group expanded into Portugal's pawn loan market through acquisition, and the 2024-2026 Strategic Plan focuses on consolidating factoring leadership and transforming the CQ division.

Financial highlights

• Adjusted pretax profit reached €26.2 million (+37% year-on-year), and total operating costs increased 17.6% to €58.9 million, mainly due to earlier booking of Deposit Guarantee Scheme charges.

• CET1 ratio (phased-in/fully loaded) increased to 12.8–12.91%, and total capital ratio rose to 15.7–15.9%, both well above regulatory requirements.

• Cost of funding was 3.59–3.6%, up 91 bps year-on-year but slightly down quarter-over-quarter.

• Cost of risk rose to 20 bps from 18 bps, with a further uptick expected in Q4 and targeting around 25 bps for 2024.

• Factoring net profit up 31% year-on-year to €23.2 million; pawn broking net income up 63% year-on-year to €2 million; CQ business contribution negative.

Outlook and guidance

• Funding cost for Q4 expected to fall below 3.5%, with 2024 average at 3.6%; 2025 and 2026 projected at 3.3% and 2.8% respectively, with potential upside if ECB cuts rates faster.

• Factoring is expected to maintain current turnover trends, with a growing contribution from Superbonus Factoring in 2H24.

• Retail Financing/CQ division's loan stock is projected to decrease due to amortisation and targeted sales, with profitability expected to improve from 2025.

• Portugal pawnbroking acquisition expected to contribute over €1 million to net income in 2025 and nearly €1.5 million in 2026.

• DGS provision booked in 2Q24 instead of 4Q, freeing up resources for 4Q24 and expected to enhance seasonality.