Multitude’s Q2 profit improvement exceeded our expectations and was driven mainly by decreasing impairment losses and good growth in fee income, which can potentially be a good asset-light growth driver in the future. This year’s guidance was reiterated, although we see it as rather conservative and see a chance that it will be adjusted upwards. With small positive estimate revisions and a slightly lowered cost of equity, we raise our target price to EUR 8.0 (was EUR 7.0) and adjust our recommendation to Accumulate (was Reduce).

Strong earnings growth continued

Multitude’s net operating income (NOI) grew by 2% to 54.8 MEUR, which was slightly below our estimate (56.6 MEUR). The NOI of Consumer Banking was rather flat (-1%) as the negative net interest income development was supported by an increase in fee and commission income. SME Banking’s growth was a bit sluggish (+4%) and below our estimates. The Wholesale Banking unit grew again at an impressive speed (+121%), where the loan and debt investment portfolio also grew at a fast rate. Multitude’s earnings before taxes (EBT) were 8.0 MEUR, which exceeded our 7.0 MEUR estimate. The profit improvement was mainly driven by lower impairment losses, which decreased even in absolute terms, even though the loan portfolio grew. Thus, the good trend continued, driven by improved underwriting and higher quality assets (lower yield customers). Also, the increased fee and commission income was a critical driver in the profit improvement. The growth in fee income is valuable for the company, as we believe it is more asset-light than the traditional lending business. Growth in fee income is driven by successful partnerships, which is one key strategic priority for the company, and payment solutions.

Business trend stays positive with interesting growth drivers

Multitude reiterated its guidance, which expects net profit for 2025 to be 24-26 MEUR. Our previous estimate was already at the top end of the range and given the performance in H1 (net profit 14.2 MEUR), we find the guidance conservative. Thus, we believe that there is a good chance that the company will upgrade its guidance during H2. It’s, however, good to note that impairment losses can be volatile q-o-q, and negative surprises are possible now and then after a long positive trend. Overall, we still find the business trend positive. Although the growth has been rather muted in the past quarters (lowering interest rates also play a role), there are interesting growth drivers going forward. One example is the roll-out of credit cards in Germany, which has gained good traction in the market since spring. In the future, this can be a good growth driver for Consumer Banking while also possibly favorable for the impairment loss-%. The growth outlook of Wholesale banking also looks promising, as the secured debt portfolio has grown at a very fast pace, and the payment solutions have started to generate fee income as well. In 2025 we expect the net operating income to grow 2% to 234 MEUR and net profit to 26.7 MEUR, which would need a positively upgraded guidance.

Valuation is still reasonable considering improved performance

We still look at Multitude’s valuation from a bank’s perspective, although the growth in fee income (from partnerships and payment solutions) could create more asset-light income streams for the company in the future, also supporting valuation. Considering our slightly increased earnings and ROE-% estimates and marginally decreased cost of equity, we have also raised our acceptable P/B ratio for Multitude. In our view, an acceptable ratio for Multitude is currently 0.90-1.20x, 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 1.0x, which is below the mid point of the range, suggesting a modest valuation. Expectations about the sustainable ROE-% level have risen hand in hand with the valuation, and with current good momentum in the business, we feel the higher expectations are justified. Overall, with the current valuation and good business momentum, we consider the risk/reward ratio attractive.