ABG Sundal Collier Holding ASA (ABG) Earnings Call Transcript & Summary

Okay. Good morning all, and welcome to ABG Sundal Collier's Q3 Results Presentation. Before we kick off the presentation, I would like to mention that we will, as usual, have a Q&A session after the presentation. [Operator Instructions] I'm also joined by my CFO, Geir Olsen here today to whom I will pass on all difficult questions as usual as well. And let's kick off with a few general reflections before we talk more about the numbers, and I think that solid is the best word to describe our performance in the past quarter. In fact, by growing our revenues by 18%. We delivered a set of numbers that in a historical context, is strong, taking the fact that Q3 is our seasonal low into account. The past quarter is a great example of the resilience of our diversified business model. It is part of our strategy to invest in the people and teams that enable us to be in top positions in all relevant product areas for our clients. In fact, we are the only Nordic independent investment bank with top 3 positions in all 3 relevant product areas within Investment Banking, ECM, DCM and M&A. Our commitment to this strategy with a clear purpose of building a better and stronger firm has been deeply integrated into our approach for many years. As such, our Q3 performance is not a coincidence. And while the IPO window continued to be shut in Q3, we still closed numerous capital markets transactions as well as M&A transactions during the quarter. Furthermore, we remain committed to prudent cost management while also continuing to recruit top talent, both on junior and selectively on senior levels. Okay. If we look more into the numbers themselves, while we overstress the importance of looking at our performance long term, it is obviously pleasing that we were able to deliver growth in this quarter by increasing our revenue base from NOK 303 million to NOK 356 million in the quarter, 18% uptick. And this uptick also brought our year-to-date revenues to NOK 1.61 billion versus NOK 1.96 billion the same period last year. We witnessed strong contribution to revenues from most business areas and geographies where Denmark and Sweden stands out in the quarter in terms of growth. But as I said, strong contribution from all locations called product areas. The operational leverage we have in our business model and combined with tight cost control, with fixed costs, slightly down year-on-year in the quarter, had a very positive effect on EPS in the quarter year-on-year, an increase by 100% -- north of 100% from NOK 0.03 to NOK 0.07. This meant that we closed the gap somewhat on profitability year-to-date versus last year, but we're still negatively affected by factors out of control that we will revert to later on. All in all, our EPS went from NOK 0.33 to NOK 0.26 in the first 9 months this year versus the same period last year. So -- sorry, the other way round. So over to the next slide and the macro and market backdrop, please? Yes. After a nice run in equity indices, in Q2, the post-summer sentiment has been weaker with markets pricing in higher for longer. While inflation directionally has leveled out and not continue to decrease at the pace the market might have wished for. Long-term interest rates have continued upwards and the markets have not priced in or started to price in that central banks probably will keep rates higher for longer. That has further dampened risk appetite, even though we are encouraged by the fact that IPO activity in the U.S. has increased in Q3. It's too early to tell, though, if this is an indication that we will see a reopening of the IPO window also in the Nordics. But it has to start somewhere, and it is usually in the U.S. where we see markets starting to turn both ways. Next slide, please. Looking at market volumes for our relevant product areas within investment banking and starting off with Nordic primary equity capital market volumes. As you can see, headline numbers, headline activity seems to be very high quarter in Q3 year-on-year with an increase in overall volumes by over 200%. But as you can see, it's from a very low base. And looking at the absolute numbers, it is still low in Q3. And I would also say that it's been not a very broad tick-up in activity. It's been driven mainly by a few large -- very large transactions, these volumes. That said, we see that the market is open for business for the right cases and especially within directed equity issues, where lead times obviously is shorter versus IPOs, for instance, eliminating the market risk for investors being stuck in a deal for many weeks in IPOs. So capital is available, but risk appetite and willingness to take on market risk is very low. Looking at Nordic DCM primary volumes, we also see a strong uptick in Q3 year-over-year with volumes being up by 90%. And I would say that this is more representative for what actually has been going on in this market during the quarter. Activity was in fact high with many transactions not least in terms of refinancing activity with markets being there in terms of supporting issuers with capital, even though obviously, the price side, the interest rate is considerably higher. And finally, M&A markets, on the other hand, has continued to be on the weak side with a number of transactions down by 16% year-on-year in Q3. But as you can see, it seems like activity has been leveling out in terms -- at least in terms of number of deals. And our take is that we have the worst behind us in the M&A market, even though deals take significantly longer to get down these days. But as sellers and buyers start to meet each other again. We see that slowly happening. We expect activity to pick up during the next few quarters. So next slide, please, Slide 5. Looking at Slide 6 first, looking at our performance in these markets and starting off with corporate financing, our revenues in the quarter year-on-year, up by some 100% with a balanced business mix across products, ECM, with directed issues as well as some rights issues, in fact. DCM with both traditional bonds as well as convertibles and direct lending contributing to revenues. And as you can see on the right-hand side of this slide, we have issuers representing many different sectors, including health care, oil service, energy, real estate, even real estate, TMT, financial, seafood and renewables. Once again, our broad approach, providing many products to many sectors proves to be a successful strategy. Next slide, please, and looking on the M&A side. We were in Q3, specifically, up slightly from NOK 121 million to NOK 125 million, even though we are behind year-to-date, in line with market. The biggest contributor here was the Sauna360 transaction, where we were advisers to the sellers. While the other examples on the right-hand side of the slide, such as the sale of Charge Amps, the merger of Unifon and Nortel as well as the acquisition of SmartTID also were good contributors to our M&A performance in the quarter. I should also mention, as you can see, we are engaged in many transactions that have been partly closed or about to be closed, not yet completed in our books as of Q3. Next slide, please. Looking at brokerage and research. That has continued to deliver a steady performance with revenues being flat or slightly up year-on-year actually on a historically high level. Year-to-date, up. But year-on-year in Q3, we have experienced less uptick in activity after the usually quiet summer period. But that said, we appear to have taken share of the declining market revenues driven by low institutional turnover. This, i.e., the low turnover could probably partly be explained by markets not having rewarded investors for taking on risk illustrated by, for instance, the Q2 reporting season, where companies that delivered better than expected were less rewarded than companies that delivered worse than expected was punished. We are, as always, stay focused on controlling what we can control. For us, that means that we continue to invest in having the best people, the best -- the highly -- most highly ranked equity research team backing our institutional sales force that combined with Supreme trading flow capabilities continues to make us a preferred counterparty to our broad Nordic and international investor client base. With that, I'd like to leave the word over to Geir.

Thank you. Flip to the next page, please. On the operating cost side, I guess, everyone knows that the recent kroner continues to be weak relative to other countries and us having a significant part of our operation outside Norway and also I would say, a meaningful part of our cost base denominated in other currencies than Norwegian kroner, we are, of course, negatively impacted by that. For the full year -- or full year-to-date, our fixed cost base is inflated by about NOK 33 million because of the weaker Norwegian kroner and the impact of the quarter is about NOK 8 million. Also, inflation is obviously a major theme everywhere. That's something we fight with every day on the cost side. However, on the non-compensation costs, we have a slight increase in the quarter. That's mainly related to IT and telecom cost. Except for that, we see that we have a very steady cost base. And with respect to compensation costs for the quarter, it is slightly up relative to the previous year. However, that's mainly due to the fact that we have a revenue and profitability-based compensation model. So the fixed cost element, that is actually slightly down. And still, we are slightly up on the total headcount. That is, I would say, partly an explanation because we have added people within our new business areas and that's in accordance with our plan. So the new business areas is expected to gradually start contributing to revenues during 2024. So with that, Jonas, I'll leave the word back to you.

Thank you, Geir, and let's wrap it up with the next slide on some concluding remarks. Q3, I think we can say that we delivered a solid performance with revenues up by 18%. And relative to last year with operational leverage working as designed. We think this performance in the past quarter is a great example of the resilience of our diversified business model with broad contribution from all products and locations. We continue to be focused, close to obsessed, I would say, by profitability since this provides us with the ability to make rational, not forced decisions that will create value over time. As such, we are relentlessly working with cost management. Nothing new with that, while we, at the same time, are progressing with our new business areas, private banking and alternative investments. And looking ahead, we are cautiously optimistic about the coming quarter as we have a strong inflow of mandates that are adapted to the current state of the markets. And as such, we are experiencing fairly high activity in our investment banking operations. So with that, we thought we'll leave the floor for questions.

We have a couple of questions. First of all, what's the status on the private banking business?

The private banking business is progressing according to plan. We are in the preparation phase where we are making sure that the product will -- that will be introduced to the market in the next year will be second to none. And we are expecting this to take another 9 to 10 months, but we are progressing according to plan. And we have also started to, as Geir alluded to, a staff within private banking.