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High growth business on solid foundation; Initiating with BUY

Right place, right time. The leading independent operator of finance portals in Germany  wallstreet:online progressed with its strategy to diversify revenues and launched its own full-service brokerage platform Smartbroker  in December 2019. The plan was set: wallstreet:online pairs a strong #2 market position with extensive market experience. A large base of affluent users and far-reaching marketing power to fuel Smartbrokers growth. 

Acting in a highly competitive environment, Smartbroker offers a more extensive product portfolio than its neo broker competitors at lower prices than branch brokers and traditional brokers. To further grow market penetration wallstreet:online will continue to market the brokerage platform on its portals. For FY20 the company has budgeted marketing expenses and setup costs with EUR 7m and another EUR 6m in FY21 (initially EUR 4m over 2 years). Supported by the integration of Smartbroker into the portal business and planned improvements on usability the company should be able to maintain dynamic customer growth. 

So far, in H1 2020 wallstreet:online could rely on its portal business as it showed resilience to Covid-19 impacts. Benefitting from Covid-19 driven market volatility and above normal trading activity Smartbroker repeatedly exceeded initial growth expectations by adding more than 60K customers as of September (initial guidance: 20K in FY20, updated to 60K in May). In the consequence, management revised full-year guidance up to 83K which we think is achievable.

We use DCF and FCF valuation methods which arrive at fair values between EUR 13.80 and EUR 14.10. We believe the company’s differentiation from competitors in online brokerage and the combination of its solid and far-reaching finance portal business will drive attractive top-line and bottom line growth. 

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