Shrinking Binck
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.
Good article, is there any exchange in particular you would recommend to someone looking to start a small investment portfolio (less than $10,000) in The Netherlands? I’ve used Degiro before but they are missing functionality like shorting on US stocks and their interface leaves a lot to be desired. Also I wasn’t happy with a lot of their inner workings and shady dealings that I’ve read about time and time again.
Is this the same De Giro company that is desperately trying to get money of HIQ investors to fund their business by offering them an 18% return?
Binck’s profit margin has not suffered – their fees have hardly changed. The number of trades is down. This is true for many other brokers and market participants, including De Giro (on a per customer basis). Other brokers have not lowered their fees either, let alone “crushed” their fees.
So Alex was sloppy in its advertising. Big deal. Go to the HIQ website and read about the +15% annual return that they predict. I suppose the fine print at HIQ that states this number is entirely made up and non consistent with past performance was slightly bigger than at Alex.
ETF trading is “free” at DeGiro only if you pay in their spread (to the benefit of HIQ).
Oh wait, I get it. Jack has a short position in Binck.
@7.31
You don’t have to cross the spread at DeGiro for free trades in ETF’s.
It’s limited to one trade per etf per month btw.
just go to Lynx or Interactive Brokers
@Robert Johnson: a portfolio of < $10k and you want to be able to short US stocks? Might as well go to Holland Casino. With a portfolio that size the fees with active trading will eat away your capital faster than you can say ‘Rien ne va plus’. Just open an account with Binck and buy a world ETF.
De Giro is really starting to hurt Flow Traders. Approaching new lows post-IPO.
@10:56 Can someone clarify the relationship and the story between De Giro and Flow Traders? Thanks
DeGiro has a businessmodel that will never succeed besides the financing problems. If it was a good company they didn’t have to pay a yield of 15% to investors..
Jack is short on Binck and with this article he is hoping to move the market. Sad action.
Why doing synthetics if you just wanna sell stock?
Now you might be implicitly long Binck’s dividend. It doesn’t seem to be your real intention, does it?
@ 11:00 More in-house matching of De Giro client orders for ETFs against HIQ means fewer trades against Flow Traders on the exchange and lower profits for them. So when you see the share price of Flow Traders tank, it MUST be because of De Giro. Just as any drop in the share price of Binck MUST be because of De Giro, the world’s best and biggest broker.
@aleksey
He doesn’t say which puts and calls, and what ratio.
Could be a synthetic, but also a pack of otm puts and an atm call.
@JULY 5, 2016 AT 7:31 AM
I think you lack some reading skills. HiQ says on their website that their goal (doelrendement) is to make 15% per year. Every funds has a goal –> nothing odd about that.
The way Binck acts nowadays shows that it soon (2 years) will be over. Soon no one is going to pay the ridiculous fees they charge.
Flowtraders down 7%. Figures next month and they probably made a killing during brexit. Mifid 2 overreaction?
@4.02PM I understand very well what a ‘doelrendement’ means thank you very much. By the same logic Alex never PROMISED their customers a certain return either, yet they were fined. De Giro has also been reprimanded for false advertising, albeit not with a 750.000 euro fine (which would be crippling for them). So it’s childish to point to a mistake of Alex in the past and a relatively insignificant fine for a company with the capital base that Binck has. But more to the point: a goal of 15% per year for HiQ seems out of touch with reality at the very least is not misleading. Or maybe they forgot the minus sign? Have you looked at the graph on their website???
If you care to read the information provided by Binck, you will see that their client base and number of trades has been rather steady. Many of their customers are not so active that there are substantial savings to be made by switching to other brokers and these people also use other services of Binck that De Giro can’t offer such as a savings account and not everybody trusts De Giro with their money. That has been discussed here and elsewhere. Some people continue to trade via the big banks who are more expensive than Binck still. You would be wrong to think that the supposedly cheapest broker will become dominant on account of lower fees. Don’t you think every adult person in Holland has been an ad by De Giro by now? Yet their customer growth is rapidly decreasing.
@ July 5 2:25 pm, thanks a lot for the clarification, now I can say that I understood it at 70% hehehe
https://twitter.com/020trader/status/750944022672318464
“Nederlandse hedgefunds die in één maand met 7,8% (Farringdon), 12,2% (Lucerne) of 8,8% (WinCap) onderuit gaan, geven de sector slechte naam”
They should not be considered hedge funds at all. The same goes for the HiQ Market Neutral Fund. Let’s see how ‘well’ they did last month. It seems they are still calculating their result, which is not a good sign.
Lucerne and Farringdon have serious size. Especially Farringdon has a good reputation.
How much AuM for Lucerne, Farringdon and WinCap??
HiQ down 2.5% for June. Kind of sad they couldn’t make a ton of money off the Brexit event as most prop firms did.
Jack, goodwill on Alex is not for Alex AM but mostly for Alex’ self investors. As you know.
@10:40pm
Correct. IIRC the asset management was introduced years after the take-over of Alex so no goodwill will have been activitated for that business.
How did your position work out for you Jack?