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


Technological expertise providing an edge in Digital Banking

Global exposure, wide range of products and innovation to drive growth
Swissquote grew in its demanding Swiss home market and started the internationalization of its operations since 2010. The company's trading platform provides access to over 3mn investment products across 65 different markets globally, which makes it a leading provider of online banking and financial services. Availability of multiple trading platforms offering a wide range of products and investment services enables clients to invest in various asset classes directly through their multiple currency online bank account while keeping control over their portfolios.

Investments in technology to increase range of services
Swissquote started its operation as a provider of an online financial platform which allowed real-time access to prices of all securities traded on Swiss Stock Exchange to private investors. Since inception, cutting-edge technology is the backbone of Swissquote. On the back of technology and regular innovation, the company started expanding its product offerings, which is accessible to their direct and indirect clients such as private and institutional investors, business partners or white label clients and which can be replicated on a worldwide scale. The latest in the offering is the cryptocurrencies trading platform, which allows trading of major cryptocurrencies against the EUR or USD. Management is keen to invest more in R&D, so that the group can introduce more innovative and user-friendly products and services. We believe continuous investment in technology should support the company to stay ahead of the curve in the long-term.

Healthy 2017 numbers; positive outlook over the medium-term
Despite the continued pressure of negative interest rates on the banking sector of Switzerland, Swissquote was able to report a healthy set of FY numbers. The company reported net profit of CHF 39.2mn, up 88.8% y/y, in 2017. The net fee and commission income increased 22.5% y/y to CHF 85.2mn. The increase in net fee and commission income was supported by the inclusion of cryptocurrencies' trading revenue in the brokerage and related income and robust performance of white labels overseas. In 2017, Swissquote introduced a trading platform for cryptocurrencies and generated revenue of CHF 5.6mn for the year from the same. We believe cryptocurrencies' trading is in the nascent stage, so volume and revenue from this segment should increase in the coming years. Net interest income also increased by 8.3% y/y to CHF 12.2mn, despite the negative interest rate expenses of CHF 17.9mn. The eForex (currency trading with leverage) division too reported a 26.2% y/y rise in revenue to CHF 66.7mn on the back of strong volume, which increased 35.1% y/y to USD 1,091bn. However, corresponding commission income as measured by dollar per million (DPM) remained stable at CHF 62.4. In terms of client accounts, ePrivate banking and eForex witnessed significant growth as both improved by 22% and 29% to 1,898mn and 41,572mn, respectively. However, the number of trading accounts was almost flat at 236,861 whereas savings accounts decreased by 12% y/y to 28,955. In value terms, all three except savings accounts witnessed growth.

Current valuation level offers an entry opportunity
In view of the diversified business profile of Swissquote within the investment services industry, we have used a blended valuation technique of discounted cash flow (DCF) and relative valuation with appropriate weights. For relative valuation, we have considered relevant multiples such as P/E, P/B and P/TBV, vis-à-vis the average multiple of its peers and historical average, to value the stock. In addition, we have used DCF methodology as non-banking operations contribute over 90% of the group's operating income. We have arrived at a fair value of CHF 71.0 per share using the blended valuation technique, which gives an upside of 31.0% from the current levels. Thus, we believe the current price levels at which Swissquote is trading offers an attractive entry opportunity.