Redeye states that Safello’s Q4 2024 report aligned with its estimates on the most prominent items. Net sales deviated by 1%, with the adj. gross margin in line. Adj. EBITDA came in somewhat lower than anticipated, driven by higher OPEX. A positive surprise in the report was that the number of orders came in 18% above expectations, but the average transaction size was 16% below expectations. The former, Redeye argues, is a point of strength, while the latter is expected to mean-revert. Redeye expects to tweak its estimates.

Net Sales came in at SEK241.3m, versus RRe of SEK242.6m (deviation -1%). Gross margin, adjusted for fair value gains and losses, was 6%, in line with RRe of 6%. The orders were 18% above RRe, while the average transaction size was 16% below RRe. We argue this is a point of strength as our view is that the number of orders is more sustainable than the transaction size. The latter has been volatile and correlating with underlying crypto price movements. Moreover, the main reason for the lower transaction size is the decreased transaction size of sell orders, while buy orders increased 12% in size y/y.

EBITDA adjusted for fair value gains at SEK4.6m versus RRe of SEK5.2m, deviating -12%. The deviation is due to higher OPEX than anticipated, mainly driven by other external expenses, which Safello states are primarily due to a higher cost of consultants and increased costs for software licenses. Reported EBITDA was well above our estimate. However, this was driven by SEK1.5m sales of treasury crypto assets and a SEK3.0m fair value gain on Safello’s inventory balance.

Safello, along with other crypto brokers, has seen outsized demand following the US election, which prompted a bitcoin rally. Bitcoin (BTC) and Ethereum (ETH) are the leading cryptocurrencies. During the quarter, BTCUSD moved by 48%, and ETHUSD moved by 29%. After the quarter ended, BTCUSD moved by 5%, while ETHUSD moved by -18 % (as of 02/21/2025).

From the CEO letter, it appears that the increased OPEX base will continue in 2025 as Safello is making strategic investments and regulatory costs related to the MiCA implementation (entered into force at the end of 2024). These investments are a stepping stone for Safello’s transition into a crypto bank. Thus, we anticipate raising our OPEX estimates. We also anticipate raising our number of order estimates while reducing the average transaction size. Overall, we expect to reiterate our fair value range.

Safello preannounced net sales and EBITDA. Therefore, we expect a muted reaction to the share, with a possible 5% gain.

Safello Group

* Safello's revenue is primarily transaction-based and heavily influenced by crypto sentiment, making it vulnerable to market fluctuations.
* The company has limited geographic diversification, having closed operations in Norway and currently focusing only on Sweden.
* Safello's revenue base is not diversified, with most income likely coming from Bitcoin transactions and withdrawal fees.
* The company operates in a highly competitive global market with numerous crypto exchanges, potentially limiting its ability to dominate the market.
* Safello's earnings are significantly affected by crypto market sentiment, which is considered a risk-on asset and subject to broader market fluctuations.

* Safello has meaningful reinvestment opportunities, including geographic and product expansion, indicating potential for future growth.
* The company can scale up without expensive reinvestment, leveraging its core platform to add functionality with minimal development costs.
* Safello's regulation-first approach provides a sustainable competitive advantage, particularly as the crypto industry faces increased regulatory scrutiny.
* The company operates with minimal regulatory interference, positioning it well in the evolving crypto regulatory landscape.
* Safello actively works with customers to innovate, as evidenced by the launch of its monthly savings function based on customer feedback.

* Poor profitability metrics, with gross profit margin, operating margin, and Return on Equity (ROE) falling below desired thresholds, potentially indicating competitive pressures or inefficient operations.
* Lack of consistent earnings growth, with no evidence of stable EPS growth over the past 5-10 years, suggesting potential challenges in maintaining long-term profitability.
* Weak historical stock performance, failing to achieve 10% compounded growth since IPO, which may indicate underwhelming investor returns.
* Limited dividend growth and consistency, with no evidence of increased dividends over the past three or ten years, potentially reducing attractiveness for income-focused investors.

* Strong short-term liquidity with current assets 1.5 times greater than current liabilities, indicating robust financial health and ability to meet short-term obligations.
* Low debt levels relative to cash flow, with Net Debt less than two times Operating Cash Flow and five times Free Cash Flow, suggesting effective debt management.
* Sufficient cash reserves to cover expected cash burn for more than two years, providing financial stability and reducing the need for immediate fundraising.
* High-quality earnings indicated by efficient inventory and accounts receivable management, low one-time charges, and strong Operating Cash Flow and Free Cash Flow conversion rates.

* Lack of extensive management team tenure, with senior team in place for less than 5 years.
* Inconsistent profitability and unclear return on investments, raising concerns about capital allocation efficiency.
* CEO compensation not clearly aligned with share performance, and lack of sustainability-related incentives in executive compensation plans.
* Management team's ownership stake is relatively low, less than their annual salary.
* Uncertain lean organizational structure, with the lowest net sales per employee among peers, potentially due to compliance requirements.

* Strong leadership with clear long-term vision and deep industry knowledge, focused on becoming the Avanza/Nordnet of the crypto economy.
* Commitment to innovation and transparent investor communication, with consistent storytelling and focus on long-term business value.
* Significant insider ownership, including founder involvement as chairman, demonstrating alignment with shareholder interests.
* Gender diversity in leadership, with strong female representation in management roles.
* Board members with extensive experience in finance and crypto economy, aligning with the company's business strategy.