Smartbroker Holding AG
Original-Research: wallstreet:online AG (von GBC AG):

Original-Research: wallstreet:online AG – von GBC AG

Einstufung von GBC AG zu wallstreet:online AG

Unternehmen: wallstreet:online AG
ISIN: DE000A2GS609

Anlass der Studie: Managementinterview
Letzte Ratingänderung:
Analyst: Marcel Goldmann

13/07/2022 – Management interview with wallstreet:online AG

‘We see ourselves as a next generation broker and disruptor of the classic
broker market in Germany. The transaction business will account for the
largest share of our revenues in a few years. ‘

wallstreet:online AG (wallstreet:online) operates Smartbroker – a multi-
award-winning online broker that is the only provider in Germany to combine
the extensive product range of traditional brokers with the extremely
favourable conditions of neo brokers. At the same time, the group operates
four high-reach stock market portals (wallstreet-online.de, boersenNews.de,
FinanzNachrichten.de and ARIVA.de). With several hundred million monthly
page views, the group is by far the largest publisher-independent financial
portal operator in the German-speaking region and maintains the largest
financial community.

Recently, wallstreet:online presented the ‘Case Study 2026’ at its Annual
General Meeting. In it, the medium-term growth potential for the improved
Smartbroker product (Smartbroker 2.0) was considered as part of a scenario
calculation. Against this background, we took the opportunity to interview
Matthias Hach, CEO of the wallstreet:online group, about the ‘Case Study
2026′, the business model and the company’s prospects.

GBC AG: Smartbroker is part of the wallstreet:online group and therefore
not a typical fintech startup in our view. What makes the combination of
financial media and online brokerage work and should this be maintained in
the future?

Matthias Hach: I’ll start with the second part of the question: yes, this
combination distinguishes us and will be further strengthened in the
future. Thanks to our financial portals, we can offer our brokerage
customers high-quality journalism, real-time prices and much more
information about the stock market – free of charge. In the near future, we
will also create paid offers, I am thinking of our own recommendation
(Börsenbrief) and further trading-specific content. In addition, there is
our financial community with almost one million registered users. So, there
are plenty of opportunities for networking and discussion. Conversely, with
the Smartbroker, we provide the readers of our portals with a fully-fledged
online broker that has been designed according to their wishes and with
which they can trade from as little as EUR 0. From my point of view, the
two segments complement each other ideally, and at the same time we have
developed a stable business model with the media business that has grown
over the years. The income from this segment allows us to finance the
growth of Smartbroker largely internally.

GBC AG: 200,000 accounts have already been opened with Smartbroker around
two years after its market launch. Does this mean that the new Smartbroker
2.0 is really giving the big online brokers a run for their money and how
well does your offering compare to the competition?

Matthias Hach: Smartbroker is challenging all brokerage service providers
and I am convinced that we have the best offer. For customers of classic
broad banks and online brokers, a Smartbroker securities account is
worthwhile for financial considerations alone. Two years ago, the magazine
‘Finanztest’ calculated on the basis of various sample portfolios that
investors who switch to us can save up to EUR 831 per year – mind you, for
the same service and the exact same transactions. I honestly find it
unbelievable that in 2022, the established banks often still offer
completely overpriced rates and have so far gotten away with it. People
often use existing offers out of habit or don’t know what newer, better
options are available. We want to change this and are therefore challenging
first-generation brokers in particular. For this, the large selection of
trading venues is important because the customers of the big banks do not
want to cut back on choice. However, our broad range of exchanges is also a
decisive argument in the competition with the typical neo brokers, which
usually only offer one or two partners. Although clients often pay no or
very low fees there, they have to buy their securities from a very specific
trading venue and this can lead to unfavourable prices and high spreads.
So, for larger transactions, it can easily be cheaper to pay EUR 4 in Xetra
trading with us than EUR 0 with another exchange.

GBC AG: Should this strategy also be implemented in other European markets
in the future?

Matthias Hach: The expansion to other European markets is currently not on
the table for us. According to the official figures of the Bundesbank, 28
million securities accounts were held in Germany alone at the end of 2021,
with the majority of them still held by traditional banks and savings
institutions, followed by first-generation brokers and direct banks, and
finally a small share at the so-called neo brokers. Due to the
comprehensive product range and the extremely favourable price model, we
are in a unique position to address customers from all three groups and to
win them over. Once we have built up a corresponding position here at some
point, we will be happy to talk about the potential of other European
markets. Let’s not forget that other providers are expanding abroad because
they are dependent on rapid customer growth – but this is associated with
high costs and risks: legal restrictions, tax regulations, language
barriers, the general war for talent and then all the coordination with the
‘mother ship’. Unfortunately, we are currently seeing that some fintechs
have overstretched themselves and now have to lay off numerous employees.
Growing the top line is not everything, for us it always has to be value-
driven. We therefore focus on sustainable growth and concentrate fully on
our home market.

GBC AG: What do clients look for when choosing a digital broker? How does
Smartbroker compare to the competition?

Matthias Hach: You can narrow it down to three criteria: First, we are
talking about the fee model. Smartbroker is undoubtedly one of the cheapest
providers on the market – several independent news outlets are even of the
opinion that we are the cheapest online broker in Germany in relation to
the comprehensive product range. Depending on the stock exchange, our
customers can trade for as little as EUR 0; with other exchanges the fee is
just EUR 1 to EUR 4. There are no custody account fees and no other hidden
costs. The second criterion relates to the product range – here we offer
the same package as the ‘big’ players, but at the prices of neo brokers.
Our customers can buy and sell on every German stock exchange and numerous
foreign trading venues. In total, there are around 40 stock exchanges
available. This broad selection is particularly important for our target
group. Based on the average custody account volumes and the average amount
per transaction, we see that Smartbroker clients are mainly experienced
investors with a certain amount of assets. These clients do not want to do
without the broad product range, but they do not want to spend more than
necessary either. The third criterion is our very good customer service,
which is an important part of the overall offer and which sets us apart
from new brokers in particular. Taking these factors together, we offer a
complete and excellent overall product suite.

We see ourselves as a next generation broker and ‘disruptor’ of the
traditional broker market in Germany. We forego fees customary in the
industry and pass on the cost advantages resulting from digital products,
lean structures and the optimisation of existing fee models to our clients.
This disruptive approach in existing markets for the benefit of end
customers is part of our company DNA. FondsDiscount revolutionised the fund
market for private investors back in 2004. Today, the brand offers more
than 24,000 investment funds without any issue premia.

GBC AG: Your group is even to bear the name ‘Smartbroker Holding AG’ in
future. What prompted you to take this step and what does the change mean
for the media business around wallstreet-online.de and the other portals of
the group?

Matthias Hach: Smartbroker is now our most important project, and the
majority of our employees already work in some form on the further
development of our online broker. In this respect, a change of name makes
perfect sense with regard to representing our core business more clearly,
but a lot will also happen on the turnover level. The transaction business
will account for the largest share of our revenues in a few years.
Therefore, I think it is only right that we also express the importance of
the brokerage business in the company name. The strategic orientation of
the group should thus also become more visible on the capital market –
after all, our stock exchange listing makes it possible to invest not only
with Smartbroker but also in Smartbroker. This will not change anything for
the media business. The portals will continue to operate under the
established name wallstreet:online, with all journalistic offerings bundled
in wallstreet:online Publishing GmbH, which was specifically founded for
this purpose.

GBC AG: Smartbroker 2.0 is the most important project for your group in the
coming years. What exactly will change for your customers with the new
edition of the online broker?

Matthias Hach: We can’t emphasise it enough: apart from the low fees and
the large selection of trading venues, basically everything changes. The
new Smartbroker is not just a facelift or something along those lines.
Within about one-and-a-half years, we have actually developed a completely
new product, which includes a completely new IT infrastructure, a new
corporate identity, a new trading interface in the web application and many
other points in addition to the smartphone app. We have created new
structures internally and strengthened existing departments with new staff,
particularly in the areas of risk management, legal, compliance, design, IT
& development and investor relations. With this setup, we are well
positioned for our relaunch and expected growth. The most important change
for customers is the elimination of a partner bank. Anyone who opens a
securities account with Smartbroker will also become a customer with us in
the future. This means that, after the licence extension by BaFin, the
securities accounts will be with us. We will take over customer service and
the entire application process, which will lead to significant improvements
in the interaction with our customers. We will simplify, accelerate and
digitalise many processes and be able to fully develop our innovative
strength with regard to ongoing product expansion and improvement.

GBC AG: Let’s stay with Smartbroker 2.0. You had announced that there would
also be some changes on the company side, for example with regard to the
scalability of the product. How high was the investment and when will the
innovation pay off?

Matthias Hach: In the project period 2021-2022, we will invest about EUR
20-25 million in Smartbroker 2.0, the associated increase in staff and IT
development work. We are internalising large parts of the value chain
around custody account management, securities trading settlement,
reporting, etc. and are working together with selected partners in some
areas. The new technology is cloud-based and scalable.

In the past few months, we have already created numerous jobs, most of them
in client services. An often overlooked difference between us and the
typical neo brokers is our good accessibility, including by phone. Many
providers can at best be reached by e-mail. Our customer service team is
available Monday to Friday from 8 am to 6 pm. But back to the investments:
a little more than half is capitalised and depreciated over a few years.
The expenses pay off from day one, as Smartbroker 2.0 already makes a
positive contribution to the profitability of the group with the current
number of customers – apart from the costs of acquiring new customers.

GBC AG: You recently presented the Case Study 2026. It includes about
600,000 securities accounts by the end of 2026, revenues of between EUR 140
million and EUR 180 million and an increase in the EBITDA margin to more
than 35%. What is the basis for this growth? How confident are you in the
continued strong trading activity of your clients?

Matthias Hach: On the one hand, thanks to our own trading app, we can
advertise on a large scale in social media and in the company’s own media
apps for the first time, which will lead to a more favourable marketing mix
overall and thus to lower costs in acquiring new customers. So, in the
future we will address a much broader target group and at the same time
expect more trades per client. Thanks to our own trading app, we will also
see trades on-the-go in the future; trading will then no longer be limited
to the PC or laptop.

At the same time, the costs per transaction will decrease due to economies
of scale, with a simultaneous increase in turnover per trade, as the
revenue share that is currently transferred to the partner bank is
completely eliminated. In addition, Smartbroker 2.0 offers our customers
trading in cryptocurrencies – all accessible via the same platform, mind
you. We have developed a completely new trading interface for the web
application and will successively integrate Smartbroker with our financial
portals. Our goal is to combine information and transaction. Looking at the
trading activity of our customers, I am confident. We have shown three
different scenarios in our case study, a so-called low case with 20
transactions per year, a base case with 30 transactions and a high case
with 40 transactions. These figures are based on the experience we have
gathered over the past two-and-a-half years. The middle scenario
corresponds to a large extent to the values we measured last year. So, in
my view, it is a realistic base value. But even with 20 transactions per
client, we still generate solid earnings thanks to the optimised business
model.

GBC AG: What future growth areas do you see for the group? Should it go
beyond the brokerage business for private investors?

Matthias Hach: With the launch of Smartbroker 2.0, our business model will
become even more attractive. For our planning, we distinguish between
projects that can make a direct contribution to turnover in the short term
and those that will strengthen the group’s position in the long term. A
very important point is possible interest income on the cash holdings of
our customers. In the current environment, this would already make a
significant difference in turnover. Specifically, our clients held around
EUR 900 million in cash at the end of Q1 2022 – at a 1% interest margin,
this would generate EUR 9 million in additional revenue. We plan to offer
this initially through a partner bank and would receive a portion of the
interest income in the model. One idea is to also offer our brokerage
infrastructure as a white-label solution to B2B customers in the future –
for example, to smaller asset managers who are currently place their
transactions via major banks at higher conditions. Other topics such as the
much-discussed equity pension and other government measures that could make
the capital market more attractive for private investors could become
significant drivers of overall market growth. This also includes topics
such as financial education, especially for younger investors, who could be
introduced to the capital market in this way.

GBC AG: What relevance does the regulatory topic ‘Payment for Order Flow’
have for the Smartbroker and your group? How would you deal with a possible
ban on refunds?

Matthias Hach: Of course, we are following the discussion very closely, but
to be honest we are relatively relaxed about the issue. For one thing, we
are much less dependent on charge-backs than is the case with many typical
EUR 0-brokers. On the other hand, we have recently seen positive signals
from politicians. A complete ban, as was discussed just a few months ago,
no longer seems to be in focus. Instead, we expect stricter requirements
with regard to transparency, and there is nothing to be said against that.
It would do the industry, and especially the image of online brokers, good
if customers were better informed about the business models and agreements.
In any case, we have nothing to hide. But now let’s play the scenario you
outlined out for a moment: in the case of a complete ban, we would probably
raise the fees per order by about one euro – and would still represent the
cheapest offer in the category ‘full product scope’, i.e. nothing would
change in the fundamental market dynamics. Other providers with already
weak margins would probably have to raise prices even more significantly.
Either way, such a decision would lead to customers paying higher prices
and thus the barriers to accessing the capital market would increase again.
This is exactly what politics cannot be about.

GBC AG: Against the background of uncertainties regarding the ongoing
corona pandemic, the expansion of the Ukraine war and a further tightening
of inflation, there is a risk of a significant cooling of the economy or
even recessionary developments. How stable or robust do you consider your
target markets and your business model in the event of a recession?

Matthias Hach: No one can say how the markets will develop in the coming
months, but I am quite optimistic for our company: wallstreet:online AG has
existed for 24 years, we have already mastered many a crisis from the Neuer
Markt, 9/11 and the financial crisis of 2008 to corona and the Ukraine war.
Our media business is stable and has been growing steadily for years. In
some ways, turbulent times on the stock markets even lead to increased
media consumption. When prices suddenly plummet, investors look for
explanations and backgrounds. Recent figures show that shareholders are
once again increasingly heading for wallstreet-online.de and our other
financial market portals. It was very similar during the hot corona phase.
With regard to our online broker, we can draw on empirical values from the
past two-and-a-half years. Opportunities always arise on the stock
exchange, which means there will always be transactions – even if perhaps a
little less. One should also not forget that a high proportion of our
clients have savings plans and thus regularly make transactions, regardless
of the political situation. Moreover, a generation is growing up that
increasingly realises that it has to do something about the pension gap,
and there is no way around the stock markets and securities investment. In
this respect, I expect a rising shareholder ratio, which in turn offers new
opportunities for us.

GBC AG: wallstreet:online was able to continue its dynamic growth course in
the past financial year. What can investors expect from your company in the
current financial year? What guidance have you given yourself?

Matthias Hach: 2022 is a transition year for us. The launch of Smartbroker
2.0 is getting closer and closer, we are currently putting almost all our
energy into the development. At the same time, we have scaled down our
marketing activities accordingly. We are saving our resources for the time
after the relaunch. Nevertheless, we expect a 25% growth in turnover this
year – based on 55,000 new securities accounts. We are confident that we
will achieve this figure. With the 55,000 new securities accounts this
year, we will have opened a total of 300,000 accounts. With that, we expect
assets under custody of approximately EUR 10.3 billion. This year, the
media business is expected to account for 56% of the turnover, the
transaction segment would accordingly amount to 44%. We expect revenues of
between EUR 62 and EUR 67 million and an operating EBITDA before customer
acquisition costs for the Smartbroker of between EUR 16 and EUR 18 million.

GBC: Thank you very much for the interview.

Die vollständige Analyse können Sie hier downloaden:
http://www.more-ir.de/d/24597.pdf

Kontakt für Rückfragen
GBC AG
Halderstraße 27
86150 Augsburg
0821 / 241133 0
research@gbc-ag.de
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Offenlegung möglicher Interessenskonflikte nach § 85 WpHG und Art. 20 MAR Beim oben analysierten Unternehmen ist folgender möglicher Interessenkonflikt gegeben: (5a,11); Einen Katalog möglicher Interessenkonflikte finden Sie unter:
http://www.gbc-ag.de/de/Offenlegung
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Datum und Zeitpunkt der Fertigstellung der Studie: 13.07.2022 (8:16 Uhr)
Datum und Zeitpunkt der ersten Weitergabe: 13.07.2022 (9:30 Uhr)

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