Binck is a premium online broker in The Netherlands. It has a small presence in France, Italy and Belgium. It’s listed on Euronext. Once upon a time, Binck launched attacks on the sleepy old retail banks. Luring customers away from ABN Amro, Rabobank and ING.

Das war einmal. The BinckBank is stuck in a moment, and they can’t get out of it. I predict a profit warning and dividend cut.

DeGiro starts to hurt

Binck’s market is not wat it used to be. Discount broker DeGiro has single-handedly crushed the margins. DeGiro has comparable trading volume, but the contender is satisfied with smaller profits. DeGiro reported €1,3 million profit in the first quarter, while Binck came it at €8,5 million.

Order execution for the retail market is a simple thing. There’s commoditization in the business. Customers will go for the lowest price. Binck operates at a premium price.

No room for a price cuts

In order to compete with DeGiro, Binck should cut transaction costs. But the overhead leaves no room for such measures. Reducing the fees with 50% would create a loss for Binck. The infrastructure of the company is too expensive. They need a lot more flow to leverage their fixed costs, according to the conference call.

This is why Binck doesn’t even gradually lowers the fees. Recently it announced to reshuffle some fees and charge ETF positions with an extra annual fee. Doesn’t make sense. Reshuffling of fees is postponed for a few months. Investors in low cost ETF’s are allergic to annual “service fees”.

Competitor DeGiro has free transactions in ETF’s. According to Gijs Nagel, this is a marketing instrument for them. “Eventually, most people who invest in ETF’s will also do regular transactions which generate a profit for DeGiro”, he added.

Clients just sit there

In the first quarter, Binck complained about market turbulence. This would scare off investors and hurt the profits. The second quarter wasn’t much better. According to the latest Flow Traders press release, the volumes in European ETF’s were down from the first quarter.

In general, “don’t just do something – sit there” is good advice for investors. Sticking with a worldwide ETF beats other approaches, in the long run. But it hurts Binck.

Goodwill at Alex

Alex Asset Management is a crown jewel turned into problem-child. Binck released a press release during the match Wales-Belgium on Saturday night. Alex received a fine of €750k for misleading commercials. That’s adding insult to the injury. Alex Asset Management is a kind of automated trading system for retail clients. The results aren’t impressive. The fine for misleading information gives support to the claims from frustrated former clients (already claiming €4 million).

The assets under management at Alex is shrinking. The fines and disappointing results won’t help. The problem is the acquisition of Alex is still in the books for €140 million. That’s too much for a struggling unit.  If the market cap of Binck is below the bookvalue, an impairment test is required. The stock is trading way below book value, so there it is.

Dividend cut

Binck is a bank, which is an expensive privilege. I don’t know how Italian banks can still pay out dividend, but in The Netherlands you need to make a profit as a bank before you can pay dividends. With a loss resulting of shrinking earnings and an Alex impairment, Binck needs permission from the central bank to hand out dividends.

I assume they will get permission, but it won’t be much.

Profit warning likely

With shrinking earnings from Alex, a serious impairment would create a big loss of the company. The company releases figures on July 25th. A profit warning could arrive every day. It wouldn’t be such a shock to the market, the stock has already been the worst performer this year on the Amsterdam market (-44%).

Even without impairments, the base case doesn’t look good without growth. First quarter came in with adjusted earnings per share of €0,12. The second quarter will be a bit worse, maybe even falling below €0,10 adjusted EPS.  A full year adjusted EPS around €0,40 would send the stock price below €4.

Disclamer : I have short position in Binck. I bought puts and sold calls when the stock traded €5,05.

Jack
Jack