Equita
Insights
IR Survey: Diversification and resiliency
Milan, 12th January 2021 – We are always keen on helping investors to better understand the Equita investment case. For this reason, the Investor Relations team is happy to provide to the financial community some insights that could be helpful to assess the right value of the Equita stock (EQUI:MI).
Today we focus on “Diversification and resiliency”, the option you voted in December with 29% of preferences in our LinkedIn survey (https://www.linkedin.com/company/equita).
Enjoy your reading!
The Investor Relations team
Equita IR - Diversification and resiliency
In the last few years, the strategy adopted by the management team of Equita led the Group to significantly diversify its services (and, as a consequence, the revenue streams) and ensured more resilient results, despite the different phases of the economic cycle and/or the financial markets’ trends involved. Let’s see how.
“Diversification” as guiding-principle in every business activity of the Group
The overall activities of the Equita Group are mainly divided into three different (but very synergistic!) areas of business: Global Markets (financial brokerage services), Investment Banking (advisory and capital raising solutions) and Alternative Asset Management (management of financial assets on behalf of clients). And all of these areas are constantly supported by an intense research activity on equities and fixed income.
Within each area of business, the full spectrum of products we offer and the different types of clients we service result in a very diversified revenue streams that contribute to improve the resiliency of Group’s results.
One clear example is the Global Markets division with its combination of different products (equities, fixed income, derivatives, ETFs…) and types of clients (institutional investors – Italian and foreign – and retail investors through partner banks). It is worth well remembering that Equita started as an equity brokerage house and the diversification that has been achieved today is the result of several years’ investments and courageous managerial decisions aimed at improving client service and completing the product offering. The acquisition of the business unit of Brokerage and Primary Markets (today, “Retail Hub”) and the Market Making activities of Nexi in 2018 is an example of “investment” that has accelerated the diversification of the Global Markets division and that strengthened the position of Equita in the market, especially in the Fixed Income domain.
The Investment Banking division then, with its complete offering (capital markets’ raising solutions, advisory in M&A transactions, debt advisory and restructuring services, corporate broking…) and comprehensive coverage of clients (large industrial groups, small and medium enterprises, financial institutions, public entities…), offers a diversified revenue mix (thus less volatile) compared to the past. The leading position of Equita in equity capital markets and debt capital markets activities, jointly with the corporate broking activities and the strong growth of the team in the M&A advisory industry – thanks to the recent acquisition closed in July 2020 of a 70% stake in K Finance (today, “Equita K Finance”) – allow the Group to offer all-in-one solutions that satisfy the different needs of corporate and financial institutions. This complete set of services and products is one of the distinguishing factors that led Equita to be the reference “one-stop-shop” in Italy in investment banking: today we are able to assist clients in all extraordinary financial transactions, provide valid support in all different phases of the economic cycle, and create – over time – long-lasting relationships with clients.
The Alternative Asset Management division finally, with its combination of proprietary investment solutions and assets co-developed with banking partners, benefits from the unique know-how of the other business areas and offers asset management services – mainly focused on alternative assets – to institutional investors. Here, revenue streams come from a combination of asset management fees on assets under management (AuM) and potential performance fees in case of particularly positive performance with respect to a specific benchmark. It is worth remembering that proprietary products (like the private debt funds managed by Equita Capital SGR) have a long-term horizon and their asset management fees are stable over time for the entire life of the management contract. This is the case because the value of the AuM is not affected by the performance of financial markets (except in particular cases), thus resulting in more resilient revenue streams over time.
Last but not least, the Research Team supports all the different business areas of the Group by studying financial markets and listed companies, with a particular focus on small and mid-caps. The significant diversification of coverage in terms of issuers (both equity and fixed income) and geography (mainly Italy and Europe) offers to clients – and to Equita itself – relevant insights on financial markets.
Conclusion
At a Group level, the complete set of products and services offered by Equita – which covers both equity and fixed income – contributes to a significantly diversified (and more resilient!) Group’s revenue stream.
On one side, when markets are more interested in equity, Equita will perform positively in equity brokerage services, equity capital markets activities and asset management products with a relevant share on equities for instance; on the other side, if interest moves to fixed income, then the brokerage fixed income desk, the debt capital markets activities and the asset management products focused on fixed income (including private debt funds) will perform best.
It is worth remembering also corporate broking that has continued to grow in the last years, with a significant increase in the number of mandates. This area helps listed companies to identify existing and potential investors with the aim of improving their visibility on the market and, consequently, the liquidity of stocks acting as Specialist. In this case, corporate broking mandates contribute with a recurring revenue stream, resilient by definition and based on number of multi-year contracts with listed companies.
Instead, other areas like M&A advisory, debt advisory and restructuring activities boast on cyclical and anti-cyclical revenue components that contribute positively to the more resilient performance of the Group over time.
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