This report is published by Research Dynamics, an independent research boutique

The group delivers as guided

For the full year 2018, Swissquote announced best ever historical annual results. The bank achieved its guidance of 15% earnings growth as guided during the first-half 2018 results' presentation. The company recorded total earnings and pre-tax profit of CHF 214 million and CHF 53.5 million, which increased by 15% and 16%, respectively, as compared to the previous year. The earnings growth reflects significant improvements in the traditional business, along with a revenue contribution of ~CHF 10 million from crypto currency trading which we projected at CHF 12 million for the full year 2018. We believe the reason for not achieving our estimated numbers was due to the slow performance of digital currency trading in the last three quarters of FY 2018. This is apparent from the CEO's statement in "Finanz + Wirtschaft" where he mentioned that the amount of business in cryptocurrencies for the last three quarters of 2018 was ~CHF 5 million, whereas the same amount had been done in the first quarter alone.

While Swissquote announced the acquisition of Luxemburg-based Internaxx bank in August 2018, the transaction has not yet closed, pending approvals from authorities. Thus, the FY2018 results do not reflect the acquisition yet. Management expects the approval to occur at the end of the first quarter of 2019 and thus consolidation will impact full year results of 2019. In addition, we expect Swissquote to benefit from the recent addition of Initial Coin Offerings (ICO) - the first one being LakeDiamond as announced back in October 2018 - to its product portfolio, which would provide clients the opportunity to diversify their asset base and invest in cryptocurrencies even without access to blockchain wallet.

Valuation

While we view the confirmation of FY 2018 guidance achievements as positive news, we have not made any adjustments to our estimates at this time. Rather, we look for a guidance update on occasion of the release of full FY2018 results on 8 March 2019. Our blended fair value of CHF 82.8 per share has thus not changed and implies an upside of 80.4% from current levels. The stock has corrected ~39.4% from its 52-week high, which we believe offers an attractive opportunity for investors to enter into a fundamentally attractive equity story based on a strong organisation with robust business model backed by constant innovation.