If you general use Fineco to set your trades you might consider buying Fineco itself!

Fineco (FBK.MI) has been listed on Milan stock exchange last July, for a price of 3.7 Euro a share, for a total market cap of 2,2 Billion, granting Unicredit 673 Million (+ 101 Million of Greenshoe) in the IPO and still holding 65 % of its equity.

Fineco’s business is in very good shape, last year the online bank was ranked N.1 in Italy as intermediary for the tenth time in a row (every year since 2004) and recently reached a high in Asset Under Management, for a consideration of 26 Billion Euro.

The online bank competitive advantage is customer satisfaction. This indicator is the highest amongst competitors, at an impressive 97%. Such a high rate is achieved through a well-designed website and an innovative App (the only in the category that allows to log in your bank account from an iPhone using your Touch ID). Fineco can be described today as the vanguard of online banking not only in Italy, but also in Europe.

Since the IPO the stock traded in a narrow range until the beginning of 2015. As the QE neared and the markets accelerated, Fineco ignited and started to outperform the FTSE_MIB significantly.

Although their business model is quite dissimilar, Anima Holding and Fineco stock tend to move together, as they share some common traits (similar Industry, newly listed, etc.). If we look at the chart, Fineco started to behave very similarly to Anima ever since Anima’s IPO.

What is curios is that most recently Anima Holding started to accelerate intensively and surpassed the cumulated performance of Fineco. In the past two months, Anima stock doubled, whilst Fineco edged up only moderately. This might weakly suggest that Fineco stock might play some catch up and convinced us to look at Fineco more in depth.

Asset Management in Italy

Given the cyclicality of the banking sector we believe that time has come for the Italian banking sector to continue the run-up. Facts suggest Fineco could be a good pick to play a comeback of Italy.

The asset management industry in Italy is booming today, private investors are coming back to the market after being scared away by the most recent crisis. As they traditionally feel comfortable with holding bonds, Italian retail investors rarely hold stock as part of their private wealth. With yields so low, they are today shifting their preferences to Asset Managers in search for yield. The evidence for this is in the increasing size of the assets managed by professional Asset Managers. As a matter of fact AUM of Fineco have increased substantially since 2014. More proof of evidence of Italian investors coming back to market is the record auction of BTPItalia held on 15th April, where Italian Retail investors were assigned as much as 5.38 Billion Euro (with a yields as low as 0.5%). As the trend continues, professional asset managers such as Azimut, Anima or Fineco earn more management fees, carving out higher profits, boosting their share price.

Index Addition

Another catalyst that might play in favour of Fineco is the index addition effect; in the Italian FTSE_MIB basket at least two companies are expected to leave the index: World Duty Free acquired by the competitor Dufry and GTech, delisted in Italy and listed in the US. Given two empty spots in the main Italian index, we believe that Fineco stock has the liquidity and Market Cap parameters to be classified as a blue chip stock for the Italian Market. Were Fineco added to FTSE_MIB more investors would be attracted by the stock, putting upward pressure on its price.

Key risks

Exposure to Unicredit

Fineco is owned by Unicredit that currently controls 65% of its capital. That said, Fineco has been mostly independent and autonomous. Nonetheless, Fineco remains considerably exposed to Unicredit, given the financial relationship between the two. The total financial exposure is €13.5bn (75% of the total asset), of which around €8.6bn is invested in Unicredit bonds with most of the maturities between 2017 and 2021. In addition, Fineco has an outstanding 1.5bn repo agreement, 1.1bn of deposit and a crossed obligation involving bonds totaling 2.3 which should be reduced over time.

Leverage ratio

Fineco capital ratio is robust (CET-1) but the leverage ratio is below the forthcoming regulatory limits set by Basel 3, the dividend policy of Fineco depends on a smooth increase in the leverage ratio. The management said that they will reach 3% by 2017. Until then the dividend policy will remain fairly prudent but we don’t expect that the leverage problem will be a challenging objective, given the high profitability of the bank

To sum up, we believe Fineco is a good pick for 2015; supported by the very positive trend for Asset Management in Italy and a general market frenzy for financial stocks in Europe due to the QE. The risks highlighted might pose threats for the long run, but we do not consider them to have a meaningful impact in the medium term.

[edmc id= 2676]Download as PDF[/edmc]


Leave a Reply

Avatar placeholder

Your email address will not be published. Required fields are marked *