Shifting Toward Secured Non Performing Loans Will Weaken Returns Over Time

Catalysts

About Hoist Finance

Hoist Finance acquires and manages non performing loan portfolios and related assets across several European markets.

What are the underlying business or industry changes driving this perspective?

• The shift toward higher secured exposure and a larger non performing loan book, with SEK 33.4b outstanding and an ambition to reach SEK 36b, may increase sensitivity to collateral values and recovery cycles. This could pressure future collection performance and impairments and in turn affect earnings quality.
• Rising NPL ratios in key markets such as France, Germany and certain Spanish asset classes expand Hoist Finance's addressable market. At the same time, they also risk crowding from other specialized debt restructurers and banks, which could compress achievable returns on new portfolios and weigh on future revenue growth.
• The company's reliance on very strong recent collection outcomes, such as 108% performance in Q4 and 105% for the full year, may be hard to repeat as portfolios season and courts or legal frameworks shift. This could reduce collection gains and put pressure on net margins.
• The move to an SDR model with higher regulatory and funding requirements, including ongoing NSFR obligations and capital buffers, could increase structural costs over time. This may limit the benefit from lower average funding costs of 3.4% and constrain net interest income growth.
• Rapid expansion in deposits through platforms in Germany and planned entry into Spain concentrates funding in retail channels that may become more price sensitive if savings rates change. This could push funding costs closer to the 4.4% level relative to NPL book value and reduce future earnings.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on Hoist Finance compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Hoist Finance's revenue will grow by 11.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 24.5% today to 22.9% in 3 years time.
• The bearish analysts expect earnings to reach SEK 1.5 billion (and earnings per share of SEK 17.45) by about July 2029, up from SEK 1.1 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as SEK1.9 billion.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 14.2x on those 2029 earnings, up from 13.7x today. This future PE is greater than the current PE for the GB Consumer Finance industry at 10.1x.
• The bearish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.19%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The non performing loan portfolio has reached SEK 33.4b with an ambition to get to SEK 36b by the end of 2026, and management reports a strong investment year with SEK 10b of new portfolios in 2025 and a solid pipeline for 2026, which could support long term revenue if purchase returns stay attractive and collections remain healthy.
• Collection performance has been reported at 105% for the full year for two consecutive years and 108% in Q4 2025, with SEK 105m of extra profit in the quarter from outperforming earlier expectations, and if this level of operational execution proves sustainable over several years it could support both net margins and earnings more than a bearish view assumes.
• Return on equity is reported at 17.6% for 2025 and 21.8% in Q4, both above the company’s stated targets. If Hoist Finance can keep ROE around or above these levels over a longer period while keeping costs under control, that may underpin earnings and challenge expectations of sustained share price weakness.
• The company now operates as a specialized debt restructurer with a pro forma CET1 ratio of 13.5%, a stable NSFR of 143% and a liquidity reserve that management considers adequate for further growth. If this stronger capital and funding position allows Hoist Finance to gain market share as European NPL volumes grow, the long term effect on revenue and earnings could be more supportive than a bearish case implies.
• Funding costs are reported at an average 3.4% with funding at roughly 4.4% relative to NPL book value, and the new retail deposit platforms in Germany and planned Spain entry have already attracted around €150m and SEK 1.5b of deposits respectively. If these platforms continue to scale and keep funding costs competitive, that could protect or improve net interest margins and support long term profitability.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Hoist Finance is SEK192.0, which represents up to two standard deviations below the consensus price target of SEK193.5. This valuation is based on what can be assumed as the expectations of Hoist Finance's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be SEK6.4 billion, earnings will come to SEK1.5 billion, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 7.2%.
• Given the current share price of SEK175.8, the analyst price target of SEK192.0 is 8.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.