Gruppo MutuiOnline SpA

MIL:MOL

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the presentation of Gruppo MutuiOnline First Quarter 2021 Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Marco Pescarmona, Chairman of Gruppo MutuiOnline; Mr. Alessandro Fracassi, CEO; and Mr. Francesco Masciandaro, CFO of Gruppo MutuiOnline Online. Please go ahead.

[Marco Pescarmona, executive]

Welcome, everybody. This is Marco Pescarmona. We will rely as usual on the presentation that was uploaded on our website earlier today. And we will start from Page 17 there with the Q1 highlights.

The first quarter of 2021 was a good quarter for us. We had revenues of EUR 78.2 million, which is up 34.5% year-on-year compared to the EUR 58.1 million of Q1 2020. The EBIT was EUR 16 million in Q1 2021, which is up 43.4% year-on-year compared to EUR 11.2 million in Q1 2020. The EBIT margin was 20.5% in Q1 '21, while it was 19.2% in Q1 2020.

In terms of net income, our net income in Q1 2021 is EUR 13.1 million, which is up 64.9% year-on-year compared to the EUR 7.9 million of Q1 2020. The net income margin was 16.7%, which compares to 13.6% the same period of last year.

If we look at the contribution of the 2 divisions on the next page, we see both divisions did well in the quarter, with the BPO Division posting revenue of EUR 46.4 million. which is up 31.6% year-on-year compared to the EUR 35.2 million of Q1 2020; and the Broking Division with revenues of EUR 31.9 million, which is up 39% year-on-year compared to EUR 22.9 million of the same period of last year. The EBIT in Q1 is EUR 5.4 million for the BPO Division, which is up 21.8% year-on-year compared to the EUR 4.4 million of the same period of last year; and EUR 10.6 million for the Broking Division, which is up 57.5% compared to the EUR 6.8 million of the same period of last year.

And it is important to mention regarding this EBIT, by the way, that this is affected by the purchase price allocation deriving from the recent allocation -- the recent acquisitions, both of Lercari and SOS Tariffe. We still have a provisional allocation. But for the intangible assets that were recognized with the asset revaluation at the end of last year, we use those amounts as provisional allocations. And so we have both software and brand assets despite being provisional, we think are quite reliable estimate that we started already amortizing even if the full allocation will be made later during the year so that we don't have to readjust backwards for the full year. It is already representative of what the year will look like. Anyway, so this is an important -- the impact creates a bigger gap with EBITDA and clearly with operational levels, let's say.

In terms of EBIT margin, Q1 2021 is 33.4% for the Broking Division and 11.6% for the BPO Division. And overall, this compares to -- for the Broking division, 29.5% for Q1 2020 and 37.7% for 2020 as a whole. And for the BPO Division, this compares with 12.5% for Q1 2020 and 14.3% for the full year. But again, this is a little bit misleading because Q1 2021 is affected by all these amortization of intangibles coming from the PPA.

In -- if you want to see the figures of the EBITDA, they are reported in the quarterly reports or you have -- we haven't put them on the presentation, but we could have done it. But the EBITDA figures are reported in our quarterly report. And I suggest that you look at those, which are probably a bit more representative in the light of the PPAs of -- to the operational performance of the business. So these are the economic figures.

In terms of market outlook, we only talk about the mortgage market, which is the one that is potentially a bit more [indiscernible], especially into remortgages. And we are at the beginning of 2021, so we start having some comparisons vis-a-vis a turbulent period of last year. And in fact, the first 2 months of 2021 can be easily compared to the same period of 2020 because in February, we still had a relatively normal situation in Italy. And then in March, we started having very serious lockdowns and pandemic issues. So we try to give both the figures for the full quarter, only for the first 2 months.

And in fact, basically, if you look at the situation overall, the mortgage market was stable year-on-year in the first 2 months. And instead, if you look at the quarter, there was a significant growth. And this is again mostly because of the comparison with a difficult March of 2020.

Looking at the data from Assofin, you see that in terms of originations, they were down by 3.9% in January and up 2.2% in February. While this is the comparison, they were up 107.3% in March 2021 year-on-year. And so for the quarter, the growth is 25%. But this is, by the way, due to a growth of 40.7% in purchase mortgages and 6.6% drop in other mortgages, which is mostly remortgages. If you look at the first 2 months, which is, again, more meaningful in terms of understanding what the underlying market is like, you find that the origination flows were down by 0.8%. and this is, of course, by 12% growth in purchase mortgages and a drop in -- of 25.2% of other mortgages. This is really the underlying situation in normal conditions.

If you look at the data from CRIF, the credit euro, basically, you see a picture that is very coherent with this, and the inquiries that are down 6.6% in January and 3% in February and then grow by 55.8% in March. And again, this is because of the comparison year-on-year. So it's a very particular comparison.

And in terms of expectations, well, first of all, Italy is, in general, emerging from the pandemic, at least from a -- as a standpoint. We have reopenings. And over the next 2 months, all the activities that should be reopened, but already now, there is a lot of people -- there are people in streets, in the stores. Restaurants are partly open. So there is a resumption of life in the economic activity. And we expect that to continue, especially it's under control.

And what we expect in terms of the mortgage market is -- the channel was already normal in Q1. It will continue to be normal, let's say, even more in Q2. And we will benefit from a favorable comparison, especially with April and part of May of last year that were very weak months, while there was a recovery in -- from late May, and June was a strong month last year.

So -- but anyway, overall, we should have grown because of these -- because out of -- Q2 2020 was weak. And for the rest of the year and in general, the mantra is growth of real estate transactions driving the growth in purchase mortgages. And on the other hand, a decline, which is more and more pronounced as time goes by and interest rates go up of remortgages. So this is very much what we said at the end of 2020, and we are seeing it happen. And of course, the fast interest rates grow, the more -- the faster the normalization of remortgages will be.

But on the other hand, the good economic situation will -- is conducive to an acceleration of the real estate market. So the 2 things will start to compensate each other. Actually, we don't know which one will prevail. Maybe the answer is very different also if it's for the markets as a whole or for our Broking activity or BPO activity.

In terms of the outlook of our Broking Division. Well, first of all, we start from the figures, very good growth in Q1 2021. Also, this was already a favorable comparison. Going ahead, we -- regarding mortgage broking, we have seen a very strong performance, but this is again also because of the comparison. So far, the first -- Q1, we are seeing growth of applications year-on-year. But as expected, we also see -- as I was saying, this is, let's say, more and more visible throughout the year. We will see now a significant drop in demand for remortgages, which is very much as expected. So it would be difficult to have overall growth in applications year-on-year, but again, we don't know yet.

Anyway, Q2 is easy to forecast. We should have a growth of origination volumes and also, of course, of revenues. For the rest of the year, it's hard to say that year -- Q3 and Q4 were very strong and the 2 balancing effects of purchase and mortgages. And we don't know yet which one will prevail.

In terms of consumer loans, we have recorded growth in the first part of the year, again, because of the comparison. We expect here to see a gradual improvement. We expect to see growth for the -- for Q2, but also for the rest of the year because this was also -- the market most affected by the lockdown was not only affected on the demand side, but there was a significant restriction of lending criteria. So this is -- and that is improving. So here, I think it's the only product that was really poor in 2020. And here, we should be able to certainly do better.

Insurance Broking, we continue to see growth. This is a business in which we have seen steady growth. Maybe we are not seeing the big [ chunks ] that we have seen elsewhere, but we are seeing a steady growth throughout the year, and this just continues. The only thing that is going against us but is only partially offsetting the growth of volumes is that we've seen premium deflation. But overall, we are positive about this, and we expect a [ consolidation ] of year-on-year growth.

Regarding e-commerce price comparison, Q1 was okay even if we had to spend more money in marketing. So revenues were up to spend more money than last year. What -- where we expect the situation to get worse is in Q2 because Q2 was incredibly strong last year, both in terms of revenues and also in terms of exceptionally low marketing costs. So we will do worse in terms of not only revenues or better -- both revenues and -- significantly worse and operating income coming from this business. But again, because it was exceptionally strong last year.

And then for the second half of the year, it's hard to say because, again, we have to figure out exactly what this business will look like as shops in shopping malls, et cetera, reopen, what it will look like. But we expect to spend money in the advertising. So this will -- even in baseline scenarios, this is likely to lead to a drop in margins because we are spending more money to make this more a brand-driven business.

Finally, telco and energy comparison. Here, we are doing -- if you look at the figures, very strongly year-on-year. But this is because we don't show SOS Tariffe in the comparison, so we had a very small telco and energy comparison business. And this year, it is much bigger because of the acquisition. And so it looks great. The reality is for the market as a whole and, of course, also for us, it is a very challenging comparison if you want to compare Q1 and Q2 of 2021 in the same period of 2020, especially because, last year, at this time, people were buying broadband -- that they were taking broadband contracts at a record pace. Of course, now there is no longer that type of need. So on the broadband part, certainly, the situation has normalized. But overall, again, we show a nice performance just because there was nothing in the comparison before. So this is the Broking Division.

And now Alessandro will tell you about the BPO Division.

[Alessandro Fracassi, executive]

Yes. Hi, everyone. So BPO Division performance in Q1 was positive. You remember that while giving the overall outlook for 2021 3 months ago, we basically said that we would expect a stable business on a like-for-like basis and that most of the growth would come from the acquisition in the insurance business of Gruppo Lercari. And this is basically what we have seen in Q1, but let's say that the ordinary business on a like-for-like basis, there was growth of around 10%. So we performed better than what we expected in terms of the overall outlook for 2021. And we also had an improvement in margin. If you look at the EBITDA level, Marco has already commented on the EBIT level, where there is the impact of PPA.

So some of these -- so these better-than-expected performance comes basically from mortgage BPO and the Leasing/Rental BPO, where we have, in both cases -- for mortgage BPO when compared to Q1, a growth of over 20%. And this is thanks to the fact that in terms of revenues, the -- we are still seeing growth in para-notary services linked to the refinancing. This is not inconsistent with what Marco said about the decrease in demand. We are also seeing decreasing volumes in input for our business. But Q1 revenues, which are obviously the output, are still strong. So there will be a rebalancing of this growth in the overall year, but the result has been so good that we believe that we will see some growth in this business line even at the end of 2021.

Also, the Leasing/Rental BPO, as we said, we expected it to be stable overall in 2021. It has shown a strong Q1, close to 20% growth relative to the same period of 2020. But this is again linked to the one-off activities on stamp duty, which we already had in Q4 of last year, and some of it continued also in the first quarter of 2021. And this makes particularly positive the comparison because there was none -- no stamp duty activity in 2021 -- in 2020, Q1 2020, which is because the law has changed, and therefore, everything stopped. And then we did everything in Q4.

So what you see in Q4 -- in Q1 is something that is also relative to last year. And last year, there was none. So it is really a very positive comparison that shouldn't be used as a predictor of what is going to happen in the rest of the year.

So overall, the expectation for 2021 are the same that we had commented last year. Probably, we said that, overall, on a like-for-like basis, would be stable. This outlook has slightly improved. But definitely, on a like-for-like basis, we will not grow 10% over last year. So I think we will continue to improve the margins that we have done, but most of the growth will come from the acquisition of Gruppo Lercari, as we said, 3 months ago. I guess that these are all the comments relative to the BPO Division.

[Marco Pescarmona, executive]

Yes. And maybe let's add just a couple of comments regarding the net financial position. Here, I suggest that we go to Page 34 of the presentation. And here, the main comment is that the net financial position, let's say, is a bit more normal. Our net financial position as of December 31, 2020 was, let's say, particularly favorable for some extraordinary effects linked to Agenzia Italia. Basically, this company is dealing with increasing rental -- BPO rental business. And one of the things it does is it pays stamp duties -- vehicle stamp duties on behalf of the owners of vehicle fleets. And normally, what Agenzia Italia does is that it pays stamp duty in advance on behalf of most of its clients. And then it receives reimbursement very, very shortly thereafter, say, 1 week after, so there's a spike of liquidity absorption.

And -- but at the end of 2020, there was a change in regulations that made it very difficult and uncertain to pay the stamp duty. And that basically allowed Agenzia Italia to ask for the money in advance from the owners of the fleet. So we had lots of advances for the payment of the stamp duty, which is normally not the case. Normally, it's exactly the opposite. So we pay in advance normally instead they give us money in advance. And this was recorded in the cash because we have the cash. But the liability was not recorded in the net financial position because this is a liability towards third parties, basically towards, let's say, the state or the administration for the stamp duty.

So this helped the net financial position as of December 31. While in March 31, we are back to a normal situation in which we have actually made some advanced payments. So you have not only reverted what was present as of December 31, but also, we have paid some stamp duties in advance for our clients. And you see there's a counterbalance to debt receivable, which is not in the net financial position. So we have those 2 things that affect basically the net financial position. And so there a big -- but it's a normalization. It was not normal at the end of -- and we said that clearly, at the end of last year, so this is back to normal.

And the other things that happened during the period and the fact that we basically, let's say, revised our exposure with banks, and now we have mostly long-term exposure. What we have that is the short term will be repaid shortly as soon as it expires because we don't need all of that. But most of our exposure is now long term, and a lot of it is fixed rate. So we took advantage of the very favorable market conditions.

And then the other thing we did that consumed a bit of cash was, as you know, we acquired 35%, the net of Agenzia Italia, the Leasing/Rental business, so that absorbed cash. And finally, we sold some -- small portion, but some of the shares that we have. So this is the explanation of all the changes in the net financial position which looks quite different from December 31. But again, it's December 31 that was a bit anomalous compared to our normal structure.

And with this, I think we are done with the presentation, and we can open it to questions. Please, operator, go ahead.

[Operator]

[Operator Instructions] The first question is from Aleksandra Arsova with Equita.

[Aleksandra Arsova, analyst]

A couple of questions from my end. First of all, you were mentioning that the BPO Division will not grow, of course, at the 10% growth we saw in the first quarter. I do think it would be reasonable, something like mid-single digit or about 5% or 6% or is this a bit too much according to your view?

The second one on the Broking Division. So taking on -- all in all, since we saw double-digit growth in organic as far as I estimate because you didn't give any indication on the nonorganic or now SOS Tariffe for Q1, do you think with respect to the double-digit growth in the organic Broking business, do you see something similar in the next quarters? Or over here, we can expect something more closer to mid-single digit or high single digit?

And the last one about the PPA. o we saw an increase in D&A from EUR 3.5 million in the first quarter in 2020 to about EUR 6 million in the first quarter of this year. So all the difference, that EUR 2.5 million, is due to PPA? Or is it a smaller portion? Just to know how much it will be in the full year.

[Alessandro Fracassi, executive]

Okay. Let me take the one on the BPO. Reality, it's hard to say. And obviously, we have an idea, but I won't -- I will not express myself on this. The reason is because there are really both positive and negative impacts that are harder to assess.

Let me give you an example of things that we have already said. Last year, we had a very, very positive performance of the loans business line because we were able to enter the market for guaranteed loans to small and medium enterprises. That was a big impact, a big positive impact which will have to normalize this year. And the impact was especially during Q2 and Q3.

So what is the normal level that we will have and how it will compare to those numbers? It's hard. And this is a negative impact. This is harder to assess and how much it will take out of the growth. At the same time, also, the new business of Ecobonus, which we expected to contribute, is not really contributing as much as we hoped. And the reason is what you can read in the newspapers every day. I mean this is something that is working, but it is not as smooth and as simple as everyone expected it to be. So we are adding costs and some revenues. But the revenues are, at the moment, not as strong as we had hoped 4 or 5 months ago when we started budgeting. So it's hard to say where it will be. It won't be a 10% growth given the trends that we see now.

[Marco Pescarmona, executive]

And I'm Marco. Regarding the growth of the Broking Division, so it's a little bit -- a bit more than EUR 10 million of revenues last year, as I think you know. So you can normalize with an estimate on that effect. And even after eliminating it, you still have very healthy growth for the Broking Division year-on-year. Q2, we -- the problem is, if you look at the following quarters, you have a combination of various factors. You have most likely very nice growth for mortgages year-on-year just because the market was frozen for half of Q2, same for personal loans, et cetera, for some businesses. But here, the e-commerce price comparison will go against. So I don't know, let's say, we grow.

And then for the final part of the year, it is difficult to say. So because of the type of comparison that we have, we -- it is difficult even for us to make a forecast. The fact that the general situation is improving, in general, should [ end ]. But again, we have to see. What we normally say is that the normal situations, our Broking Division should be able to grow double digit organically. But again, you have a quarter where you do plus 30% and then maybe another one where you're negative or flat. It's really hard to say at such a granular level with a year-on-year comparison compared to a very strange year like 2020.

And regarding the PPA, this is easier. We -- by the way, it is important to point out that we also made a small accounting change in our amortization. You know that we did an evaluation assessment of our intangibles at the end of -- with the full year 2020 accounts. And basically, out of that exercise, we recognized a lot of evaluations which are beneficial from a tax point of view. And as part of that exercise, we recognize that maybe it made more sense to amortize our intangibles over a period longer than 3 years. And in fact, we -- the operating companies -- lots of the operating companies were amortizing software. I'm talking about software here. Instead of amortizing software over 3 years, are now amortizing it over 4 years.

So whatever you have in -- balance at the end of 2020, that goes now in 4 years. So that by itself would have reduced the amortization of intangibles. And so the increase is probably slightly a bit bigger than what you see by just doing the difference between Q4 2020 and Q1 2021. And that is due to the PPA basically.

You know that all the revaluations we made within the company were already part of the group do not appear in terms of amortization under IFRS. But where we have made an acquisition, basically, we have to allocate the difference between the price and the book value. Basically, we -- as I said before, there, we could allocate to different intangibles. It is still provisional, but we are located based on the valuations that we made. So that's what explains the jump of amortization.

[Operator]

The next question is from Filippo Prini with Kepler.

[Filippo Prini, analyst]

I've got a question. The first one, if you can go back for a second, the newly acquired business. So SOS Tariffe and Lercari, if you can tell which is the trend of revenues in Q1 '21 versus Q1 '20.

The second is if you can tell in which quarter, which of the next quarters you have to pay the second or last tranche of payment of Lercari on installment.

And the third one is on your statement about the decline -- the improving interest rates should affect the financing, but the contrary with positive cost environment sort of better to grow that could become positive for new acquisition mortgage. Is there a level of interest rate that you see that started to be negative even for new mortgages?

[Alessandro Fracassi, executive]

Okay. Let me just say, on Lercari, that it's basically stable relative to the quarter last year, Q1.

[Filippo Prini, analyst]

And we are talking about a bit less than EUR 10 million?

[Alessandro Fracassi, executive]

Sorry?

[Filippo Prini, analyst]

And we are talking about a bit less than EUR 10 million of revenues?

[Marco Pescarmona, executive]

Possibly less because you will see that with the half year results that the figure that we took in the press release didn't have the consolidation offsets. So it was the sum of all the revenues of the different companies we acquired, but some of it was...

[Alessandro Fracassi, executive]

Intracompany.

[Marco Pescarmona, executive]

Intracompany.

[Alessandro Fracassi, executive]

To just explain very quickly, the Lercari has basically 2 big business lines: one is loss adjusting, so basically understanding the value of the damages in an insurance claim; and the other is outsourcing of the whole claims handling, what is normally referred to as TPA, third-party administration. Obviously, as a third-party administrator, you sometimes need to do some loss adjustment, so to appraise damage, you use that. And in many cases, we are allowed to use our internal loss-adjusting capability. And therefore, in that case, you would see this intracompany invoicing of the appraisal services to the TPA administrator. So that has to be taken out, and it amounts more or less to 1/4 of the total revenues.

[Marco Pescarmona, executive]

By the way, looking at what Alessandro said before, basically, he said that we had growth of say, 10% roughly on the existing businesses, and the rest of the growth came from Lercari. So from that, you can get a ballpark figure. But you get a figure that is less than EUR 10 million of revenues.

You do that calculation, I think you get around, I don't know, EUR 8 million, something like that, EUR 7 million to EUR 8 million. But just as an estimate, but certainly not EUR 8 million because the -- not EUR 10 million because of what we said before.

Regarding SOS, basically, we said before that if you compare the whole market in terms of -- especially broadband year-on-year, you see a growth for the entire market because last year, we had an incredible spike of new contracts. So you can expect this to -- but we already knew this would happen to be down year-on-year. And you will see the figure for the first half when we publish the first half results.

And regarding the payments of Lercari, Francesco is saying wrong. We will ever think around EUR 11 million. It was in the press release. So I think we have EUR 11 million in June. We have another EUR 4 million in September and another EUR 11 million at the end of the year. So that's the payment schedule. And then there are some smaller things. But so -- but roughly, that's the full picture.

And regarding the interest rates, this is very much we are feeling. But basically, the idea is that even as long as interest rates don't grow by -- I mean, as long as we stay before, 4%, I would say, this would have a very minor impact or no impact on the -- no adverse impact on the real estate market.

In terms of refinancing, it is more -- the market is more sensitive because basically, if we are -- even at 2.5%, basically, all the people that have done remortgage in the last 3, 4 years, we -- no benefit from a new remortgage. So basically, it rules out of the possibility of remortgage all the people that have done it in a window of 3 to 4 years. And instead, 4% is not very expensive yet. Historically, it is not very expensive. The real estate market is quite favorable.

So I think that before the mortgage prices have an impact -- breaking impact on the real estate market, it will take time. And it's quite unlikely. I think the economic recovery, the fact that people need bigger loans, et cetera, and the fact that real estate prices are still quite low, will be the main driver. So we expect a recovery there in Italy, the only country that didn't really have a serious real estate recovery over the last 10 years.

[Alessandro Fracassi, executive]

Yes. By the way, the growth in real estate price is translating to a growth in the average mortgage amount, and that is a driver of our revenues and of many things also on the BPO side. So the growth in prices -- on real estate prices, it's also caused -- I mean drives also our revenue growth and margin growth.

[Marco Pescarmona, executive]

Yes, we expect to see some price inflation there.

[Alessandro Fracassi, executive]

Yes. And we don't see that as a negative. Absolutely not.

[Marco Pescarmona, executive]

By the way, as soon as you start seeing price inflation, you think that by investing in real estate, you make money and a lot of people come because of the fear of missing out. And for a few years, it's a good market, normally.

[Alessandro Fracassi, executive]

Yes, yes. Yes, we've built this company on those kinds of trends between 2003 and 2007, so we welcome them back.

[Operator]

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

[Marco Pescarmona, executive]

Okay. Then we wrap it up. So thanks, everybody, and talk to you next time. And as always, we are available for one-on-ones.

[Alessandro Fracassi, executive]

Thank you, everyone.

[Francesco Masciandaro, executive]

Thank you.

[Alessandro Fracassi, executive]

Have a great evening. Bye-bye.

[Marco Pescarmona, executive]

Bye.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.