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Revenue decreased but client growth is pure dry power

Revenue decreased but client growth is pure dry power

EARNINGS/SALES RELEASES

As expected Swissquote took a hit from the financial market turmoil. Clients’ assets decreased from CHF 55.9bn at FY 21 to CHF 51.8bn with a material impact from the crypto asset class. However, the continued and sustainable client growth is a tremendous asset as it sustainably fuels the pool of cash deposits, diversifying the stream of revenues (from interest rates), while adding up to revenue potential as soon as markets recover.

FACT

H1 22 Results:

Net Revenues of CHF 200m (down 24.4% yoy and down 3.9% sequentially), slightly below our expectations (c.CHF 210m)
Pre-tax profit of CHF 90.7m, down 32.7% yoy and up 2.2% sequentially, implying a margin of 45.3% (vs. 50.9% at FY 21 and 42.6% at H2 21)
+34k accounts added in the period yielding CHF 5bn of net new money (of which CHF 1.7bn of non-organic inflows from KeyTrade portfolio)
Launch of a new crypto exchange, improving Swissquote’s crypto service and enhancing revenues from the asset class
FY 22 guidance revised downwards to CHF 400-420m in Net revenues and CHF 190m in Pre-tax profit on the back of prudent assumptions
Guidance 2025 maintained



ANALYSIS

As expected, Swissquote’s H1 22 results were impacted by the current environment. In fact, with markets tumbling, clients have been less inclined to trade (c.3.2m trades on securities vs. 3.6m and 3.5m the last two periods) and their overall assets have taken a hit (especially cryptos, with assets under custody decreasing from CHF 2.8bn to CHF 1.1bn).
This translated into a 6.7% yoy decrease in Net fee & commission income to CHF 81.3m (an absolute negative variation of CHF 5.8m) while Net crypto asset income decreased by 69.2% yoy to CHF 19.45m (or an absolute negative variation of CHF 43.8m while the group’s revenues decreased by CHF 61.6m).
In fact, excluding the crypto shock we have seen over the past half year, the tumbling markets would have been fairly addressed by Swissquote, on the back of higher interest rates and very strong customer growth which have a lot to deliver in the coming months.
The firm recorded 34k new accounts (of which 8k from KeyTrade Bank) which represented 8% of HY 22 net revenues. On top of this, we believe that some of these new accounts (those from Key Trade) could actually yield further revenues as the full integration of the clients occurred at the end of May, requiring adaptation to a new platform. We believe that this steady growth in clients has the potential to offset much of the impact of unstable financial markets, while it is reasonable not to expect a crypto shock of a similar magnitude to the one we have seen in recent months.
On top of this, the increase in client deposits coupled with higher interest rates adds-up to Swissquote’s potential to derive asset-based revenue, hedging away from the negative impact on transaction revenue from financial market instability.
In fact, 18% of client assets are deposited (c.CHF 9.3bn) of which CHF 6.5bn will benefit from higher rates (deposits are split 20% / 60% / 20% among USD, CHF, and EUR respectively).
As specified by the management, we can expect a positive contribution of net interest income of c.CHF42m (conservative assumption).
Despite that, Swissquote managed to tightly control its expenses with a pre-tax margin of 45.3%, which is above the level of the previous 6 months (42.6%).
We are thus confident that the growth in accounts, as well as the identified behaviour on the platform (no panic selling or outflow of assets) demonstrates the sustainability of the customer base and should be a strong lever under better market conditions.


IMPACT

Swissquote revised downwards its FY 22 guidance but kept the FY 25 objectives intact. We will adjust our model based on the published figures but do not expect any change in recommendation. We strongly reiterate our opinion on the stock.