Multitude Q1'25: Strong earnings momentum

Multitude’s growth in Q1 was slightly below our expectations, but the profit beat our estimates clearly driven by declining impairment losses. The guidance was adjusted upwards, and although it was no major surprise, it gave more confidence toward the earnings growth outlook going forward. Given the improved performance, we still find the valuation attractive. We raise our target price to EUR 7.0 (was EUR 6.2) and reiterate our Accumulate recommendation.

Strong profit improvement driven by lower impairment losses

Multitude’s net operating income (NOI) grew by less than 1 % to 55.9 MEUR. The development was slightly weaker in all business units, but the dynamics between the units were as expected. The NOI of Consumer Banking declined slightly (-3 %), SME Banking grew at a solid pace (+8 %), and the early-stage Wholesale Banking unit grew at an impressive speed (+89 %). On top of the biggest income item, net interest income, NOI was supported by increasing fee and commission income from new partners, showcasing that the partner strategy is bearing fruit. Also, income from associates (24.5% stake in Lea Bank shown here) supported NOI development. The profit took a significant step change as EBT rose to 8.3 MEUR (Q1’24: 3.0 MEUR), which was led by lowered impairment losses. The comparison period was challenging in terms of impairment losses, but still, the improvement was very strong. The trend in impairment losses has been positive for a longer time now, and the company seems optimistic about the trend going forward as well. Key drivers for this are, for example, enhanced scoring and underwriting processes and focusing on better asset classes (more secured loans).

Guidance adjusted upwards

Multitude adjusted its guidance upwards and now expects net profit for 2025 to be 24-26 MEUR (previously reaching 23 MEUR). Our previous estimates were already in the middle of the new guidance range, and thus the adjustment was no major surprise. Naturally, it increased our confidence in the positive profit development trend going forward. Given the adjusted guidance for this year, we now expect the company to be able to reach next year’s guidance of 30 MEUR.

Multitude also gave business unit level targets for this year. The company expects at least 5 % EBT growth from Consumer Banking, double-digit growth and reaching profitability in H2 for SME Banking, and an EBT level of 4-5 MEUR for Wholesale Banking. We find the Consumer Banking target very doable, and the SME Banking and Wholesale Banking targets more ambitious but doable with good execution. We would find it very positive for the investment case if the profitability targets of the smaller units were realized, as the Group would gain new profit drivers and diversify profit generation in general. When it comes to the operating environment, the company was rather positive and saw that the turbulent macroeconomic environment has not had negative effects on the loan demand and payment behavior. 

Valuation still reasonable considering improved performance

As our earnings and ROE-% estimates have risen in the past quarters, we have also raised our acceptable P/B ratio for Multitude. In our view, Multitude’s acceptable ratio is currently in the range of 0.85-1.15x, derived from assumptions about sustainable return on equity and cost of equity. Treating the perpetual bonds on the balance sheet as debt, Multitude's current P/B is slightly below 0.9x, which is at the lower end of the range, suggesting a modest valuation. Sustainable ROE-% level expectations have risen hand in hand with the valuation, and with current good momentum in the business, we feel the higher expectations are justified. We also note that the Lea Bank investment alone comprises around 20 % of Multitude’s market cap, and the share price gain of Lea Bank is not visible in Multitude’s balance sheet. Overall, with the current valuation, we still see the risk/reward ratio as attractive.