Gruppo MutuiOnline SpA
MIL:MOL
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Earnings Call Analysis
Q3-2023 Analysis
Gruppo MutuiOnline SpA
The company's revenue in Q3 2023 reached EUR 84.6 million, reflecting a substantial increase of 36.4% compared to Q3 2022. EBITDA for the quarter is up 7.9% to EUR 75.1 million, driven by year-on-year growth but with a margin that has decreased from 83% to 26.5%. Net income saw a smaller rise of 5.4% year-on-year to EUR 11.3 million, influenced by higher interest costs.
The market for purchase mortgage loans has contracted by about 40% year-on-year, largely due to high interest rates which led to a near absence of mortgages in the first half of the year. Despite a growth in remortgages, these represent a small portion of the market, and the sector's overall performance is heavily affected by the decline in purchase mortgages. Credit report inquiries for residential mortgage applications have also dropped by approximately 20%.
The Broking division's revenues surged by 57.8% to EUR 47.1 million, while EBITDA increased by 34.5% to EUR 14.8 million compared to the previous year. However, there was a decline in EBITDA margin from 36.7% to 31.3%. The growth is attributed to international ventures and other sectors such as energy and insurance, offsetting the weakness in e-commerce price comparison due to reduced consumer spending.
Revenue in the BPO division grew 20.1% to EUR 47.5 million, with a 9% increase in EBITDA. Nonetheless, EBIT is down by 27.2% due to acquisition-related amortizations and mortgage-related business weakness, although these results align with expectations. Growth in this segment stems from the consolidation area and strong results in business lines like insurance comparison, due to a high number of weather-related claims.
The net financial position is at a negative EUR 335 million, a slight improvement from the first half of the year. The leveraging remains around 3x net debt to EBITDA, despite dividends and buybacks. Potential growth areas identified include insurance BPO, subject to new regulations, and new entrants in the mortgage market looking ahead to 2024.
The PPA exercise for international acquisitions will lead to a significant amount of depreciation and amortization (D&A) reported in the last quarter as it covers nine months of the year. This will result in unusual D&A figures, but it is expected to stabilize from the first quarter of the following year.
The executive team discussed no current pressure to sell their stake in Money Supermarket, with capital gains likely to be exempt from December 1st. They suggested a cautious approach towards selling. The team mentioned maintaining an opportunistic stance on mergers and acquisitions using the assets as potential resources for future opportunities.
The company faces headwinds with the mortgage market's volatility, yet remains optimistic about its diversified growth and upcoming opportunities in insurance and BPO. Executives continue to remain open for one-on-one meetings or calls to offer additional insights to investors.
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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the presentation of Gruppo MutuiOnline Third Quarter 2020 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]. At this time, I would like to turn the conference over to Mr. Marco Pescarmona, Chairman; Mr. Alessandro Fracassi, CEO; and Mr. Francesco Masciandaro, CFO. Please go ahead.
Thank you. This is Marco Pescarmona, and welcome, everybody, to our call. We will rely as usual on the presentation that is available on our website and start actually from Page 18 of the presentation with the Q3 highlights. In Q3 2023, our revenues are EUR 84.6 million, and that's up 36.4% year-on-year compared to the 53 2022. The EBITDA in the three months is EUR 75.1 million. That's up 7.9% year-on-year compared to the EUR 19.6 million of Q3 2022. The EBITDA margin is 26.5% in the quarter. That compares with 83% in the same quarter of the previous year, in the nine months, it is 26.6%, so it's like in line with the previous part of the year. EBIT, which is affected by the amortization of the assets there having from PPA, is EUR 16.4 million in Q3 2023. That's up 10.6% year-on-year with EUR 14.8 million in Q2 2020. Net income, which is also affected by the interest costs that higher interest rates as to pay is EUR 11.3 million in Q3 2023, which is up 5.4% year-on-year compared to the EUR 107 million in Q3 2022. So, these are the results. We would say that these results are both in line, if not slightly better than what you would have expected based on the outlook and the performance of the previous quarters. And basically, no particular surprise. And we remain, in particular, in a situation in which the mortgage market is very weak. And maybe let's comment on this for starters, and then we will make some comments about the specific business lines of the two divisions. But looking at the mortgage market in the entire nine months, the mortgage market was significantly down year-on-year with increasing weakness throughout the year, in particular, starting from Q2 and discontinuing into Q3 despite seeing a contraction of around 40% year-on-year in purchase mortgage loans. Basically, in the year, especially in the first half of the year, there were noting mortgages very [ fury ] mortgages because of my interest rates and so on. And a progressive contraction of purchase mortgages. Now, in recent quarters, remortgages are showing very significant growth, even if they remain a very small portion of the market. So, the demand that we had long mentioned of remortgages from variable to fixed is translating into some volumes of transactions. So, there is percentage-wise significant growth, but in absolute, it's not a big component of the market. The performance of the market as a whole is dominated by the 40% drop in purchase mortgages. And by the way, what is happening, if you look also at the real estate transaction information is that the property market is contracting, but the number of transactions is only declining by, say, 20%, prices more or less stable. So, as I was saying, the mortgages are down 40%. That means that the portion of cash purchases has increased significantly. So people have savings in the bank that are not remunerated, and they use them to buy property, which is what is happening. So, I think the property market is suffering, but is happening on collapsing. If we look at forward-looking information like did inquiries, we still see a reduction in the neighbourhoods of 20% of credit report inquiries for residential mortgage applications. So, I would say, raise to expect some further contraction possibly also in Q4. Q4 of 2022 was already divested. And so, the contraction is going to be softer. So, this is overall the situation. And then when we go into 2024, the comparison will be again against the 3-week page mark. So, we don't see too much contraction happening in 2024. But it's a bit uncertain. And having said that about the mortgage market, just as a reminder, mortgage-related business is also because we have a contracted account for, say, around 25% ballpark of our results. And that, by the way, explains why overall, we have to believe is a good performance despite the situation. It's because the other businesses are doing okay, well or very well, depending on the businesses. And if we look at the Broking division itself, and we are on Page 21 of the presentation, the Broking division generated EUR 47.1 million of revenues in Q3 2023. This is up by 57.8% year-on-year because in Q3 2022, we made EUR 29.9 million. And the EBITDA is EUR 14.8 million, which is up 34.5% in the year, and we did EUR 11 million in Q3 2022. EBITDA margin is lower, 31.3% in the third quarter of this year and that compared to 36.7% in the third quarter of the previous year. And maybe it's following the same trend of the EBITDA. And here, in terms of explanations and an outlook, basically, we have credit broking mostly mortgages that was contracting during most of the year and is still suffering at the same time, we have a good performance of -- first of all, we have a change in consolidation area. So, there are the international businesses that are, first of all, we're not there before. And second, they are performing well. So, they are also giving not only a good revenue contribution but a relevant contribution in terms of EBITDA. And then we have energy that is doing quite well. We have growth in insurance. So, we have are smaller things that are also going well, like bank accounts, that kind of stuff, but that is more business. I would say the only thing that is going sideways or slightly down is e-commerce price comparison because consumers apparently, don't have much money to spend. And so, we see weakness there. And I think that the situation of the Broking division. And this was very much what we explained at the end of the first half. And most likely, this is what will continue to happen and yes, I would say, mortgages year-on-year, just because it would be an easier comparison will be doing better. And the rest of the business lines we most likely continue to perform best until now. There are no particular news, again, apart from the weakness of E-commerce Price comparison, but it was already visible in Q3. Regarding the BPO division on Page 23 and Page 24, in the quarter, revenues are EUR 47.5 million. That's up 20.1% year-on-year compared to the EUR 39.5 million of 2022 is EUR 10.4 million in Q3 2023. And this compares to EUR 8.7 million in Q3 2022. So, it's up 9% more or less in line with the growth of revenues. EBIT here is instead down year-on-year. It's a EUR 4.1 million in Q2 2023, that's minus 27.2% compared to the EUR 5.7 million in Q2 2022. And the reason is the PPA amortization of the acquisition of Trebi. So, we amortize intangibles that come out from the allocation of the purchase price. And also, the retail division is suffering of the weakness of the mortgage-related businesses. And this is all in line with expectations. And the growth is in revenues and the results here similarly to what we have been broking is attributable to the enhancement of the consolidation area. And we have some business lines that are seeing very strong results. One is the insurance and the comparison is basically an organic or mostly organic comparison. Actually, in the quarter, it's fully organic. And this is being to the fact that we have a lot of catastrophic events during the year flat, and other events linked to weather, so lot of claims. And then within rental, BPO is growing both because of what we said before, the change in the consolidation area, but also for internal reasons, in particular, a lot of vehicles are being shipped finally. And so, there is activity linked to that because the backlog from past vehicles has been cleared. More BPO, we said, is the transferring. We are, however, not doing so bad in terms of revenues, but the revenues are, let's say, low-quality revenues because it's notary services that are much lower margin than mortgage processing, which is still significantly down. And the other business lines are, let's say, substantially stable. And, for the rest of the year, then again, we expect to see a continuation of the current trend, so great insurance and leasing rental mortgages in terms of revenues doing better, but with a large portion of that is low margin, so process coordination clearly down and stability of the other business lines compared to the first half of the year. So this is, I would say, a picture that doesn't present any particular moves in terms of business performance. We are happy with the way things are going. We are happy that we are highly diversified that is a very unfavorable environment for what was to historically our main business, we are able to deliver a strong financial performance and we will continue to operate in this environment until we have visibility that something has changed. One point that is important is an update on net financial position and leverage. And here, the net financial position, we are on Page 27 at the end of the third quarter is a negative EUR 335 million. That's around EUR 7.5 million, better than the net financial position at the end of the first half. And just to keep in mind that in the quarter, we paid the dividend, so it was paid in July. And also, we did significantly more buyback. This is because there were more volumes in the market than usual. So, it was like EUR 4.5 million of buyback in the quarter. But this is, again, linked to the fact that there was more liquidity especially in this and in September. And I would say, we should be on track to be around 3x or slightly go 3x, but say, close to that number at the end of the year. And the piece of information that is relevant, but it's not and something that has been formalized or decided, et cetera, is that we are in talks with one of our lenders, which is Intesa, which is the only land that had covenants that do not include in the net financial position, the value of the managed super market shares with all our lenders, except Intesa in the covenant, we consider may super market shares, which are our financial investment is liquidity. And so, the number that is relevant for the bank is this one, which is EUR 202 million, which would be a leverage ratio 2x. And so, we are in part to align this to hopefully point this to intake to what the other banks have. But in any case, we will not have any particular concern in will be a bit tight, but we would be able to do it, we think even without this. So, I think this is all the relevant information, and we will close the presentation here and now and open the discussion to questions. So operator, please go ahead with questions if there are.
Thank you. [Operator Instruction]. The first question is from Filippo Prini from Kepler.
I got two questions. The first is on the outlook for the business abroad in the press release and in the present month's report, you mentioned that you expect an improvement of the profitability of this business. I remember that when you bought this business, they were generating EUR 8 million EBITDA with a bit more than EUR 60 million of revenue. So an EBITDA margin of around 13%. Could you give us an idea of today, after three quarters of consolidation, which is this EBITDA margin compared to the 13% time of the acquisition? And the last one is on the PPA and the amortization. I noticed that the D&A in the third quarter slightly declined compared to the second quarter D&A. So basically, let you know if you have finished amortization of the PPA of some assets of the past and so waiting for the PPA on the business abroad, the D&A of the third quarter should be the run rate for the future? Thank you.
Okay. I'll take both. So, I think by the end of the year, we'll try to give you a precise idea of exactly what we are doing in the foreign businesses, I would say we have always been positive about the economic performance. I think in general, what we have said so far and I repeated it, but we are seeing more than growth in revenues with some growth in revenues, but it's more an expansion in the margins. And I don't know, it's certainly not in line with what we have in Italy; we are north of 30%. This is higher than what we had before, nicely higher, but not as comparable to what we are in Italy. I cannot say much more; these businesses should in general be able to deliver 20% to 30-plus percent EBITDA margins. And then it will happen over time, but we have made the initial stage. And again, we try to give more precise information at the end of the year when we have all the numbers fixed, et cetera, and so the onset will be. Regarding the PPA or, let's say, the depreciation and amortization of the D&A line and if you look at it by quarter, elites leading because it's a little bit misleading because of how we do the PPA exercise because the PPA interface, I get to do it within one year of closing an acquisition. And just as a reminder, that means you look at the difference between what you paid and the book value. And when you do the acquisition, the day closet, you treat it as provisional goodwill. And then, within a year, you have to decide whether that is goodwill or you allocated to specific assets, which in our case are normally software and trademarks. And the part that you allocate to specific assets also gives rise to amortization. So, what we did is in the first half results, we closed the allocation of the acquisition of Trebi and being a software house with a software platform that it has to its clients. There was a big software asset. So, we recognize it at the end of the first half. But then we also recognize the amortization of that. And we are recognizing one quarter, the amortization of the first half of the year. So like double amortization was visible in Q1. And then in Q1, there was amortization of the -- if you look at it by quarter, no. In the second -- it's like it was all because you do it by difference because all in the second quarter, we put the amortization of the first and the second quarter because you can do it only when you close the PPA. And then the third quarter was like a clean quarter, like a normal run rate quarter, so that's represented actually. And in fact, the third quarter is like an average of the first and the second if you look at it by quarter. Now this question is also useful because it allows me to say that we still have to finish the PPA exercise for the international acquisitions, and then we will have trademarks and software. And so at the end of the year, we will show these have overall lower goodwill and these two assets, but also we will have the amortization of these two assets. So, given that we do it at the end of the year, you will see a lot of D&A because it has to cover for nine months of the year for these two assets. This is just a way or we've always elected on the format. So, the D&A of the last quarter of the year will be a weird number because it includes the full-year effect of this PPA exercise also for the international businesses. And then, from the first quarter, to make a forecast of the D&A for the future, you'll just be able to take the average of the D&A of the fourth quarters of the year, and that will be okay. So, it's going to be a bit confusing, but we are available to explain or answer questions or anything.
Okay. So basically, the Q2 had the catch-up effect of the past quarter will be the same also for the fourth quarter.
Yes.
The next question is from Aleksandra Arsova with Equita.
There are three on my end. The first one is on the insurance business, what actually BPO and broking. So currently, from what I know that the government is proposing this, let's say, mandatory insurance policies for natural disasters to be potentially be I mean, to make it composed by 2024, that do you believe this could further accelerate your growth in insurance BPO? And on the other hand, in the broking into business, do you believe to maybe there are other verticals that could be interesting for you to enter in and so what could be other drivers that growth there apart from increasing premia and market penetration. The second one on the mortgage business, especially on the BPO, we know that you recently acquired two clients, customers as of new banks. Maybe some more color on this? Are these Italian clients, banks, you didn't cover previously. Where are some new clients or maybe foreign players. And so, if you see more room for new customers entering the foreign banks entering the Italian market. The last one is on money supermarket. If I remember correctly, November is demand now from which you could benefit from the let's say, preferential fiscal treatment on if you sell the stake. So, do you think it could be a good moment to start, as I say, selling a portion of managed per market or you are still good with the state you have at the moment? Thank you.
Okay, Marco, maybe I'll take the BPO part, if you agree, and then I'll leave you with the broking part and the money supermarket. So first of all, on insurance, well, yes, obviously, if the natural disaster insurance becomes a compulsory, this would be a significant boost, although I don't know the timing of that impact, it really depends on what is the time line that the law will give to give you obviously a gist to it, there were basically -- well, there were a number of disasters, unfortunately, this year. But you might remember in May, the one that happened in the Emilia-Romagna and then in July, the one that happened in Milan. Now in terms of business, the one in Milan was much more significant because it impacted an area where the level of insured properties is much higher than the one that impacted even if it was much bigger in terms of damages, the rural areas or the industrial areas of Emilia-Romagna, where the penetration of insurance was smaller. When you hit a city, you it mostly condominiums, and those are normally already insured, and therefore, the garden, the roofs, and any other damages that they create through their things falling out, they are all covered. So, we've got much more work. We get much more work when we hit a city when natural disasters hit a city than when it has when even a bigger disaster is an area where the penetration of insurers is smaller. If by law, the penetration increases, that's obviously a significant boost. In terms of mortgages on the BPO side, we are not seeing yet the impact or maybe just one client, but really not much. These are, obviously, banks operating in Italy. The one is an Italian bank that we were not covering. And this is starting to take away business from a competitor. And then the other one, it's a foreign player that was already present in Italy and already active in the mortgage market. But here, we work more on an overflow capacity. So, it will depend on really the volumes of the market and how they cope with the market. And then we still have a prospect, which is actually instead of a new entrant on the Italian market. And all of these will be impacting in 2024 for anyway.
Okay. Regarding insurance broking, we don't see any particular opportunity at least for now from the new regulation that was mentioned. Regarding many super market, it's true that by November or to be more precise, by the 1st of December, the capital gains would be mostly exempt if we decided to sell. But today, we have no particular pressure or desire to sell. So, we look at this, we like the company, we like the investment. Supermarket is doing well. The energy market in the U.K. is still to reopen. It is just starting very slowly to reopen. And so, we wouldn't rise things. Then, of course, as we said already that after now we don't refresh if you want to sell, we will use this as a source of resources in case we have an M&A opportunity or other things. So, it would be a very opportunistic approach and maybe we said maybe we don't, maybe we do a little bit we will not be able to give guidance for anything but we don't expect to be doing anything particularly impactful present at least.
[Operator Instruction] The next question is a follow-up from Aleksandra Arsova from Equita.
Sorry, just a quick follow-up. Maybe I don't know if you were able to disclose it, what was the amount of revenues coming from the natural disasters we had in Emilia-Romagna and Milan so the ones you were mentioning before, just to get an idea. And the second one, again, on mortgages, if I remember correctly, over the last quarter's call, you mentioned the fact that apart from the go down in demand for mortgages, although on the supply side or there were some slowdowns or banks are not that keen on doing mortgages or remortgages. So, do you see the situation from the supply side changing a little bit, just as a sentiment feeling on your side?
No, I don't. I'm not able to tell you the part on how much is connected to the natural disaster. I mean, we mentioned that you will see any way the numbers of growth when we released the number by business line at the end of the year. And the organic growth, it's basically due to the disaster. Again, here, it is not correct to look at these things as one-off events because this is exactly what insurance is about. And there are years where this is more impacting and years where it's less impacting. But unfortunately, I believe that there is a clear secular trend, which is also the reason why the law is coming in potentially into effect for which these disasters are increasing, probably also for two reasons. On one side, we might have been particularly careful in managing the land. And on the other side, also the climate is on a secular trend for changes and for more severe events. In terms of mortgages, I'll let Marco comment on what we see on the BPO side. The supply strictness was mostly on remortgages. I don't think there is a significant change in any direction on that from what I see. But probably, Marco is in a better position to comment.
No, I agree, there is a low appetite, very low appetite for the mortgages because we think they will these mortgages will be refinanced again very soon. Whereas the appetite for purchase mortgages remains good, and then the problem is the demand.
[Operator Instructions] Gentlemen, there are no more questions registered at this time.
Okay. Then we can close the call, and we thank everybody for participating. And as always, we are available for one-on-one meetings or quick calls, whatever, if you have any questions. Thank you,
Thank you, everyone. Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephone.