B2 Impact ASA Stock analysis: Here, I will take a look at the Norwegian company B2 Impact, what they do, the company's finances, and whether there are any aspects I recommend you examine more closely if you own or are considering owning this company.
What is B2 Impact doing?
After taking a look at the company, I can see that this is a "debt collection company."
They are listed with three main points:
Debt Collection: This is the typical debt collection part. Here, B2 is in contact with consumers or companies that have debt claims and attempts to collect the debt they owe. There are typically two methods for how this is done: willing payers and unwilling payers.
For willing payers, they set up repayment plans, and the process is calm and based on the needs of B2 and the consumer's ability to repay the debt.
For unwilling payers, they typically go through lawyers and the legal system to collect money through alternative methods such as wage garnishment.
Debt Purchase: Here, B2 is in contact with financial institutions and buys NPL (Non-Performing Loans). This is debt bought at a discount, which frees up liquidity for the financial institutions while B2 takes on the risk that the customer will pay the debt.
Third-Party Debt Collection: Here, they collect money directly for the institutions, which means they do not own the debt themselves. This significantly reduces the liquidity risk for B2 and is carried out in countries like Finland, Sweden, and Spain.
The downside is that the profit is typically lower, but with a lower liquidity risk, it provides a more secure profit.
Strategy
B2 focuses on Europe and currently operates in two different markets:
Unsecured debt and Secured debt
The secured debt is primarily in Western and Southern Europe, as you can see in the image below.
They will also focus more on their main markets going forward. This is something they have been working on over time, reducing their presence from 23 different countries to 17. As of today, they are investing in 10-12 markets and continue to concentrate on their main markets.
They have a strong focus on capital discipline, which has allowed them to repay some of their own debt. However, they now plan to take a slightly more aggressive approach. In 2023, they purchased over 27% more debt claims than in 2022. They will still be cautious but are slowly and steadily increasing their portfolio.
Abit about finances
After reviewing B2 Impact's financials, it is clear that the top line is increasing while the bottom line is decreasing.
This is due to several reasons, but the main cause is margin and interest rates.
Although B2 has repaid a significant amount of debt in recent years, there has still been a substantial increase in interest rates, which means that a large portion of their margin is lost to interest (currently about 25% based on the results).
In Q4, as shown in the image below, they projected that portfolio income would increase and interest rates would start to decrease. This is expected to lead to an improvement in margins over time.
To address something specific, there is a refinancing of a bond, Bond 5, which is 200 million euros at a 6.35% margin, to a 100 million euro bond at a 5% margin.
This leads to further cost control and indicates that B2 is more stable than it has been in a long time.
Statement
A strong growth from 2014 to 2023 indicates the kind of journey this has been for many of the investors involved. They have increased their revenue tenfold and significantly improved their results. The peak for the company was reached in 2018, where the bottom line hit new highs.
One should not overlook the top line, which has continued to grow and can provide good indications of where the company will be in a couple of years if they gain control over their interest costs. With the changes in bonds, they are already well on their way, and 2024 could look strong if B2's projections align with market developments.
INCOME | EBIT | EBT | RESULTS | EBIT margin | MARGINS | |
2014 | 511 | 91 | 71 | 52 | 17.91% | 10.20% |
2015 | 1076 | 377 | 243 | 198 | 35.05% | 18.41% |
2016 | 1396 | 516 | 227 | 227 | 36.94% | 16.29% |
2017 | 2013 | 984 | 648 | 648 | 48.90% | 32.18% |
2018 | 2537 | 1378 | 808 | 649 | 54.31% | 25.57% |
2019 | 2713 | 959 | 165 | 107 | 35.33% | 3.95% |
2020 | 2765 | 1224 | 411 | 309 | 44.27% | 11.18% |
2021 | 2344 | 1308 | 742 | 573 | 55.80% | 24.45% |
2022 | 3477 | 1029 | 421 | 326 | 29.59% | 9.38% |
2023 | 4129 | 1578 | 468 | 363 | 38.22% | 8.79% |
Balance
When I look at the company's debt and asset structure, this is not a company that I feel provides a lot of security.
With a high debt ratio compared to assets, this is something they have improved over time and boast about in their presentation, stating they are one of the best in the industry at this as of today.
In general, I feel they have too much interest-bearing debt, which significantly increases the risk of the stock, especially when I compare it to their loan portfolio.
A 10% margin is too low for me (not considering the liquidity in cash), and I hope they will continue to work on improving this. (The value of the loan portfolios can quickly change if the loans are not repaid and just remain outstanding.)
This is a risk one must consider with the company and seems to be a general problem in such a capital-intensive industry.
I anticipate that Q1 2024 will look considerably better, although some liquidity will be lost when Bond 5 is bought out.
Total interestbearing debt | DEBT | Total Assets | Debt-to-EBITDA Ratio | Cash | Loan portfolio | |
2014 | 1213 | 1588 | 2960 | 13.26 | 294 | |
2015 | 2526 | 3036 | 4708 | 6.70 | 765 | |
2016 | 3218 | 3724 | 6149 | 6.24 | 218 | |
2017 | 6728 | 7649 | 10797 | 6.84 | 452 | |
2018 | 10769 | 11818 | 16174 | 7.82 | 398 | |
2019 | 11638 | 12705 | 16942 | 12.14 | 356 | |
2020 | 11269 | 12450 | 17169 | 9.21 | 423 | |
2021 | 9225 | 10322 | 15315 | 7.05 | 376 | |
2022 | 10217 | 11283 | 16499 | 9.93 | 1176 | 11181 |
2023 | 10440 | 11740 | 17329 | 6.62 | 1404 | 11542 |
Cash flow
A significant growth in operations makes B2 look much more economically viable than elsewhere. Here, they demonstrate how much value they can extract from their portfolios and that they truly have something to offer financially.
You can see that debt uptake ended in 2020 and that they have slowly but surely focused on cleaning up the balance sheet.
They pay low dividends based on operations and have shown considerable strength in 2022 and 2023 when compared to Intrum.
It is worth mentioning that Q4 was very strong regarding secured loans, and I am very interested in how this will progress moving forward.
OPERATIONS | INVESTMENT | FINANCE | DIVIDEND | |
2014 | 210 | -1155 | 1108 | |
2015 | 591 | -1388 | 1233 | |
2016 | 908 | -2819 | 1400 | |
2017 | 1289 | -4270 | 3064 | -55 |
2018 | 2291 | -6274 | 3986 | -122 |
2019 | 2872 | -3624 | 674 | -184 |
2020 | 3193 | -1760 | -1489 | |
2021 | 3505 | -1155 | -2385 | -61 |
2022 | 3142 | -1900 | -392 | -168 |
2023 | 4290 | -2139 | -2077 | -77 |
KEY RATIOS
Based on the financial review, we should see an improvement in the debt-to-EBIT ratio as more debt is paid down, an improvement in the debt-to-equity (D/E) ratio, and an improved operating margin.
This will lead to slightly stronger key figures in certain areas for the stock.
ROA | ROE | D/E | Debt-to-EBIT Ratio | margin | |
2014 | 1.76% | 3.80% | 1.16 | 13.26 | 10.20% |
2015 | 4.21% | 11.85% | 1.82 | 6.70 | 18.41% |
2016 | 3.70% | 9.38% | 1.54 | 6.24 | 16.29% |
2017 | 6.00% | 20.57% | 2.43 | 6.84 | 32.18% |
2018 | 4.01% | 14.89% | 2.71 | 7.82 | 25.57% |
2019 | 0.63% | 2.53% | 3.00 | 12.14 | 3.95% |
2020 | 1.80% | 6.55% | 2.64 | 9.21 | 11.18% |
2021 | 3.74% | 11.48% | 2.07 | 7.05 | 24.45% |
2022 | 1.98% | 6.25% | 2.16 | 9.93 | 9.38% |
2023 | 2.09% | 6.49% | 2.10 | 6.62 | 8.79% |
STRENGHTS
Good cash flow – they have shown over time that they bring in a lot of money.
Potential for good dividends – they have paid out low dividends for an extended period, which could improve as they gain better control over their debt.
Potential for bottom-line growth – with a margin squeeze stemming from interest rates, B2 has improvement potential due to the debt control measures they have implemented.
WEAKNESSES
Collections face risk – there is a risk with debt that does not get paid.
Morality – many believe that what the company does is morally incorrect.
Has previously had issues with debt (2019-2020).
IInvestors seem uninterested in B2; with a PE ratio around 8, it shows there are low expectations for the stock.
Poor balance sheet. To me, it feels like there is too much interest-bearing debt relative to the portfolio.
WHAT YOU SHOULD FOLLOW FORWARD
What is happening with B2 Impact's main markets?
How do Q2-Q3 look based on the interest rates?
Do they maintain positive revenue on the top line?
Do they continue to be disciplined?
A SIMPLE SUMMARY
So, in this stock analysis of B2 Impact, we can say that it is a company in a less favored sector within finance. They enjoy strong operating results, but the net profit and balance sheet are not as strong.
They have significantly increased their revenue since 2014, but this has also increased their debt ratio.
As of today, I can see that B2 is quite dependent on interest rates, with over 1 billion NOK out of 4 billion NOK going to interest alone. If they can get this under control, it creates significant positive drivers for dividends (which are already at 8%) and value growth, as expectations are already low.
I recommend comparing them with companies like Intrum, which belongs to Sweden (Lindorff), and if you are looking for a stock with some risk tied to debt, where you believe we have reached the peak in interest rates and it will only go down from here, one could argue that B2 Impact is a good buy.
As of today, I do have any ownership in B2 Holding, but after a deeper review for this article, I feel that B2 has gone from a company I didn't want to one I can consider buying.
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