31.01.2023, Author: Stefan Feulner

Stock News: Smartbroker Holding AG - Opportunity with a double bottom — The development of the Next Generation Broker is proceeding according to plan

  • Online Brokerage
  • Krypto
  • Rebound
  • Trading

The significant corrections on the stock markets and the resulting drop in trading volumes dragged down the prices of online brokers in the past stock market year. Nevertheless, investors' appetite for shares remains unbroken despite the sharp price falls. Even in Germany, the land of savings books and growth certificates, the number of equity savers rose by 830,000 to 12.9 million in 2022, according to the German Equities Institute. Currently, the recovery on the stock markets is likely to continue as the phase of interest rate hikes comes to an end. This should also increase the trading figures again, whereby the segment of online brokers should experience a rebound. Smartbroker Holding AG, in particular, took a brutal blow due to delays in the development of the Next Generation Broker. If the new schedule is adhered to, there will be an attractive opportunity for disproportionate share price gains.

Realignment after the crash

The outcry last August was great when founder and supervisory board chairman André Kolbinger retook the helm as CEO due to differing views on the future implementation of "Smartbroker 2.0". Since then, the plan to build a Next Generation Broker in proprietary development was thrown overboard. As a result of the uncertainties, the Smartbroker Holding share temporarily lost around 68% to a low of EUR 5.39. After retesting the low for the year, the stock recovered significantly and is currently trading at EUR 7.22. With the overcoming of the annual high at EUR 8.78, the chart picture would brighten up significantly, and the bottom formation would be completed. The next price target would then be the downward trend at EUR 11.15, which has been in place since June 2021. Due to the current positive development of the Company, this scenario does not seem unlikely.

After a renewed test of the annual low, the signs for the Smartbroker share are pointing to recovery. Source: Refinitiv Eikon, as of 01/30/2023

Cleanup and clear strategy

Since the change on the command bridge, the Company has been trying to communicate clearly and clean up the mistakes of the past. On the one hand, it was announced that the launch of the Next Generation Broker would be postponed to summer 2023. Secondly, EUR 5 million was written off at the balance sheet level on development costs already capitalized for the initially planned transaction platform. Marketing expenses for new customer acquisitions were stopped and are to be ramped up significantly after the scheduled launch.

Despite the suspension of new customer acquisitions, the fact that the amount of customer assets under management increased by EUR 0.4 billion to EUR 9.2 billion in 2022 shows that the Smartbroker business model has established itself in the market. The increase in the number of 30,000 new securities accounts opened is also positive. Based on preliminary figures, the Company from the capital assumes somewhat weaker sales in the amount of EUR 52 million. The original forecast was between EUR 54 million and EUR 57 million. Also, at EUR 9 million, operating EBITDA was below the target corridor of between EUR 10 million and EUR 12 million. The final figures for the full year 2022 and an outlook for the current year are scheduled for early March.

The launch of "Smartbroker 2.0", including the trading app, is planned for summer 2023. Source: Smartbroker Holding AG

Planning security with experienced partners

Ensuring that the timelines for the "go live" are adhered to this time in order to offer customers what Kolbinger calls "Germany's most attractive broker" is in the hands of the new partner in Baaderbank, which will be responsible for securities processing in the future. The Berliners, however, are responsible for the frontend and essential parts of the middleware, which includes security authentication, order preparation and settlement. The fact that the Unterschleißheim-based brokerage can do this is shown on the one hand by the existing system, and on the other hand by the current customer list**. They cooperate with three competitors, including Scalable Capital, and have repeatedly demonstrated their proof of concept as a reliable partner.

In addition, the new partner offers significantly more design options in comparison to DAB. For example, the eminently important smartphone app and a trading interface programmed to the latest standards will already be available at launch. In addition, a significantly faster and completely digital securities account opening will be offered, including the opening of securities accounts for corporate customers as well as joint and junior securities accounts. In the next step, trading of more than 20 cryptocurrencies is then planned. These will be mapped by one of the world's leading providers of institutional trading technology for digital assets, Wyden.

Interim Conclusion

The Berliners have clearly lost investor confidence due to the postponement of their future project but are regaining this bit by bit through clear communication and a stringent strategy. "Smartbroker 2.0" must be launched in the summer of the current stock market year, and Kolbinger must deliver. Should this succeed, nothing stands in the way of a strong rebound in our view. Because with a trading app and a modern trading interface, Smartbroker Holding AG will be able to compete with established neobrokers. The combination of a typical neobroker with a broad selection of trading venues and investable products, usually only known from established banks and classic brokers, should also be included in the valuation as a premium.

The update is based on the initial report 11/2021

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