Avanza Bank Holding AB (publ) (AZA) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the conference call of Avanza's interim report, January-June 2026. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Gustaf Unger, CEO. Please go ahead.

Good morning, everyone, and welcome to the presentation of Avanza's Q2 report. Here in Stockholm, apart from me, we have Jonas Svarling, our CFO; and Karolina Johansson, Head of Investor Relations. But to start, I think it's fantastic that we are once again reporting a record quarter, with an operating profit at SEK 928 million, and we're putting a historically strong first half year to the books. We also saw robust underlying growth during the quarter, welcoming over 40,000 new customers to Avanza's. Strong market depreciation combined with net inflows of SEK 19 billion made our savings capital reached a new all-time high, now exceeding SEK 1.2 trillion. A major strategic milestone during the quarter was completing the phaseout of our external savings accounts, which has created a self-inflicted drag on our net flows for about a year. However, I'm glad to say that 60% of the volume has -- or was retained at Avanza, which truly is a testament to the value our customers find in consolidating their savings with us. During the 1.5 years that have passed since the phaseout was communicated, we can note that the number of customers with Avanza's savings account has gone from 390,000 to 700,000, and that the savings account volume has grown from 33 billion to over 65 billion. Despite the ongoing significant uncertainty, we saw a clear shift in sentiment among our customers who showed a risk on behavior, and a strong appetite for foreign trading. The net inflow to the Swedish fund market increased significantly, and so did fund flows at Avanza, where our customers' net purchased funds at record amount at almost SEK 17 billion. We have kept a high pace of product development throughout the quarter, rolling out several key launches across all our customer segments, and I will walk you through some of the exciting product updates in more detail later on. Avanza's corporate finance has had an active quarter in which we broke new ground and enabled participation for noninstitutional customers in 3 new issues through ABB. An accelerated book building is a fast way for companies to raise capital often in just one evening where the price is determined based on investor demand. Historically, this short time window has meant that private investors have been excluded from the process. Through this, Avanza continues to democratize savings in Sweden. Also, I'm proud to say that Avanza was once again ranked as one of Sweden's most reputable companies and as Sweden's most reputable bank in Verian's annual Reputation Index. The index is a compile -- or sorry, the index is compiled based on questions regarding general reputation, personal impressions, trust, success and quality. Avanza's reputation index score for 2026 was 67, where our reputation index score above 60 is considered high, and Avanza is 1 of 12 companies in total with a high reputation according to the survey. Among the other companies at the top are major international corporations such as IKEA and Volvo. Lastly, we have an exciting organizational update to share. Last quarter, I mentioned that we had begun searching for a new CEO to lead Avanza Fonder. Today, I'm thrilled to announce that Maria Wärn has officially taken over as the new CEO since May 1. Maria brings an incredible strong background to the role, and I'm highly confident that she is the right person to drive our fund business forward and challenge the market even further. Despite ongoing and significant geopolitical uncertainty, risk appetite in the market has strengthened, resulting in record levels on many stock exchanges around the world and also for the savings capital at Avanza, which exceeds SEK 1.2 trillion. Also, the Swedish economy is finally beginning to pick up speed, albeit somewhat later and less powerful than I had previously hoped for. Consumers have started to spend, and Sweden's economy now stands stronger than most other countries around us. In June, the Riksbank left the policy rate unchanged for the sixth consecutive meeting. This bodes well for increased savings going forward, and Avanza is well positioned to capture a good share of this growth. The fact that we, with the market penetration exceeding 20% of the Swedish population has acquired close to 100,000 new customers in H1 is truly a testament to our continued growth capacity. Looking a bit deeper into who these new customers are, we can conclude that the 2026 cohort remains consistent with new customers in previous years. Their median age is 31. They hold, on average, around 30% funds and 45% shares, and their share of foreign equity is at around 20%. The average recurring monthly saving among these customers is around SEK 2,300 per month. We are seeing a clear risk on sentiment among our customers in the quarter. Although volatility has decreased compared to the very high levels in March in Q2 -- sorry, in March, Q2 has also been characterized by numerous political statements, which created market reactions and major movements in individual sectors and securities. This is a market climate that suits our stock market enthusiasts well, and we can see that they have been active during the quarter, while trading was also broad-based across the customer base, and we're seeing an increasing number of brokerage-generating customers. The risk on sentiment is also evident when looking at the share of deposits of the total savings capital, which declined as a result of customers net buying risky assets. Since January 2025, the liquidity share has been more difficult to use as an indicator for customers' sentiment as we have been in the process of internalizing the external deposits. The strong appetite for foreign trading continues to stand out in the quarter and reached new record levels, both in absolute and relative terms as a 31% share of the total brokerage-generating turnover. The listing of SpaceX, which took place in June, was a contributing but not decisive factor. Instead, we are seeing a more widespread trend, with a desire to increase exposure to the AI and semiconductor sectors is the common trend. However, looking at the allocation mix within customers' equities portfolios, the trend should also be structural and is expected to continue as home buyers is still strong, with 75% of customers' portfolios exposed to Swedish equities. Stock trading is what we have historically been associated with, and customers interested in the stock market are naturally drawn to Avanza. For years, we have been working actively to broaden the associations of the Avanza's brand also to fund savings, and we have been very successful. A higher share of fund income means a higher quality income mix with more recurring revenue. Our fund business is growing strong with record net inflow, resulting in all-time high fund capital volumes as well as fund commission income in the quarter. The shift from active to passive funds has been ongoing for years, and Avanza has taken an active part in fueling this by constantly reminding of how fees affect performance and savings capital development over time. This has resulted in high trust from our customers and thereby volume growth, which is key to also increase fund income. Looking at the levels we are at now when it comes to the mix shift, we're also seeing that fund categories within the index funds have an effect on the margin, where a high interest to gain exposure to global, U.S. and emerging markets acted as a cushion to the continued increased share of index funds. I'm very pleased that we are consistently maintaining a high pace of product development. And during Q2, we have made several launches that strengthen our overall offering. On the theme of funds, during the quarter, we expanded our fund offering with the launch of Avanza Sweden. This is a broad market-weighted index fund covering 99% of the Stockholm Stock Exchange. With a competitive fee of 17 basis points, it serves as a perfect building block for broad savings and a great complement to our existing house funds, where Avanza Zero is only tracking the 30 most traded companies on the Stockholm Stock Exchange. And in Avanza Sweden, all cap, no single company is allowed to have a weight of more than 2%. Furthermore, we launched our new pension portal for corporate customers, which is an important milestone in our aim to become the #1 occupational pension company. The new portal simplifies administration for employers. By reducing manual work, we make Avanza an even more obvious choice for occupational pensions, which in turn helps us to secure more long-term sticky capital on the platform. For our most active traders and private banking customers, we integrated Kepler Cheuvreux's analysis directly into the platform. This means real-time access to institutional grade research for both Nordic and international stocks, which significantly enhances the value of our offering and has been sought after for long. Lastly, we took social investing to the next level on Placera Forum, which is already Sweden's largest investor community by far. By enabling customers to link their Avanza portfolio to the forum and thereby sharing their asset allocation and transactions, forum members get increased opportunities for decision support, learning and engagement as well as contributing to transparency among the members. At the end of the quarter, just 2 weeks after launch, 7,600 of Placera Forum's users had activated portfolio sharing. All in all, it's safe to say, it's been an active quarter with lots of new value created for our customers. While the Swedish initiatives are moving on at a high pace, in parallel, the preparations for our Denmark launch is also progressing according to plan. On the organizational side, we are in the process of establishing our branch, recruiting a branch manager and other key positions while also detailing our go-to-market plan. On the development side, the work is progressing at full speed. It's actually truly fascinating how far the team has come in just this quarter, and we have already been down to Copenhagen to test an early prototype with potential customers. Our success in Sweden has been achieved through close cooperation with our customers. We will take the same approach in Denmark to ensure that we solve concrete Danish customer needs and to build engagement even before the launch. I also wanted to take the opportunity to speak a bit about the strategic choice to build a new platform, which was made possible thanks to AI and the speed with which we can now develop software. Looking back a bit in time, the plan from the start was to adapt our Swedish platform, which is completely doable. However, it has been coded to suit Sweden for 27 years, and thereby automatically assumes Swedish krona as the base currency and Swedish SDE language. This can be changed, and it's not particularly complicated, but it would involve many of our Swedish development teams, thereby risking disrupting the progress of the Swedish business. Therefore, our initial plan was to hold off on the international adaption until later in the planning period. In parallel, our tech organization has embraced AI-driven development from the start. Initially, we didn't see major positive effects from it, but last autumn, we started seeing substantial progress in one of our development teams that had been testing an AI-first approach while building our new occupational pension portal. That's when Fredrik, our CTO, came to me with the idea of using AI to build a completely new international platform at the low cost. This would allow us to drive the international expansion in parallel with the Swedish business without disrupting our -- without disrupting our Swedish teams. I understand that this might raise some questions. Throughout my career experience has taught me that consolidating technology is a top priority during an acquisition, for example. However, the technological landscape looks drastically different today, and we need to adapt and think differently to emerge as winners in this. We're now deliberately introducing some complexity, which goes against what we have previously learned, but I'm convinced that this is the right decision. With that, I will hand over to you, Jonas, to take you through the financials.

Thank you, Gustaf, and good morning to all. Repeating a little bit what Gustaf said, it's a true privilege to once again be reporting record results summarizing the historically strong first half of the year. Once again, we see strong contributions from all the income streams, where income is up 6% versus last quarter and almost 30% compared to Q2 last year. Our costs are developing according to plan. And all in all, this results in an operating profit of SEK 928 million and EPS of SEK 4.97. Return on equity was 43% for the quarter, well exceeding our target of at least 35%. If you take a closer look at the revenues, we can see that the income mix has greatly benefited from the market environment we saw in Q2 with positive stock market development, sustained high trading activity with a strong appetite for foreign exposure, somewhat high interest rates and an average higher deposit levels compared to Q1. There were 3 fewer trading days compared to last quarter, which had a slight negative effect on the brokerage income compared to Q1. However, it was still 26% higher than Q2 last year. Looking at the brokerage margin, it increased to 11 basis points in Q2 compared to 10.6 in Q1, driven by the higher share of trading in foreign markets, which reads, as you said, Gustaf, a new record level of 31%. Also, the turnover per trade in the fixed brokerage fee class deep line, which also contributed to the higher margin. And as mentioned before, we saw an increase in the number of brokerage generated clients. The share of brokerage generated by private banking and pro was stable at 26% in the quarter. Brokerage-generating turnover foreign securities reached a new all-time high. And as a result, FX income continued to increase and was up 11% compared to last quarter. The positive stock market development and combined then with historically high net inflow to funds, as you saw in the previous chart, result in a fund capital increase of 19% in the quarter. Global U.S. and tech funds, which have higher margins, increased as a share of total fund capital, whereas the share of index funds continued to increase with 1.4 percentage points to 53.8% at quarter end. The combined effect on margins from this was that the quarter end fund margin amounted to 22.7 basis points compared to 22.8 basis points at the end of Q1, i.e., and in total, relatively stable fund margins. That coupled with volume increases resulted in a new record level for fund commission income. Other income decreased, primarily as a result of lower income from Avanza Markets. The trading ETP is even more driven by volatility and trade in general and trading in Avanza Market was therefore boosted by this extremely volatile environment, especially that we saw end of Q1. Also, the phaseout of external savings accounts was completed during the quarter and these consequently no longer [ earn an ] income within the other income line. And as usual, there are many small both other commission income lines and other commission expense lines, which are a little bit small to disclose separately that will contribute to the full picture. Finally, when it comes to NII, let's look at some more details on the next page. NII, as many other income lines, reached a new all-time high in this quarter, mainly thanks to increased volumes on average, although the market rate uptick that we saw for a few weeks in March and April also contributed. Our income from surplus liquidity increased is SEK 534 million, mainly as a result of higher average deposit volumes, although the deposits were lower at quarter end due to customers' increased risk appetite. On the deposit cost side, we have made no changes to our interest rates in the quarter, and the increased average interest rate for deposits was therefore a result of a higher share of deposits or interest-bearing accounts, which amounted to 60%, up from 57% in Q1. On the lending side, also lending rates were kept stable. However, the average interest rate for internal finance lending decreased to 2.7% compared to 2.8% in Q1, and this was a result of volume mix changes within the different margin lending rate levels. However, this was, as before, more than mitigated by higher lending volumes that continued to increase. Our private banking mortgage remains very attractive, and the margin lending volume increases with higher risk appetite. Going forward, NII development will, as always, reflect the market rate environment in terms of both the Riksbank policy rate and then mainly the STIBOR 3-month rates, but also and as well, the behavior of our customers under allocation where deposit savings will always constitute the share. With the external things account now being phased out, deposit growth, going forward, will be linked to our overall growth in savings capital, but with some variations of the deposit savings capital ratio depending then on customer risk appetite. Although where we see positive macro signals in Sweden so far, the situation in the Middle East has still clouded future and how the policy rate and market rates will develop and is still uncertain. When it comes to interest rates, our strategy is to make decisions in relation to each policy rate decision and that remains, which gives us flexibility to take customer behavior and competition into account when adjusting rates. Moving over to costs. They are developing according to our plan and came in higher than in Q1 as a result of higher personnel costs and other costs, both connected our work with strategic initiatives. Marketing costs were seasonally lower. And when it comes to our international expansion, SEK 3 million of the quarter's costs were linked to this. Establishment costs will be [ lap ] over time, and the estimate remains that the cost base of 2026 will be affected by a total of SEK 50 million linked to the international expansion. Our full year 2026 guidance of 9% cost increase for the Swedish business also stands. As evidenced by the numbers related to the capital position, it is very solid. We also audited the Q2 figures, which has further strengthened the capital base by including accumulated earnings net of expected dividends. Keeping a strong capital position has proven good, but not least in a rapidly shifting market environment we've seen for over a year now. And with our current capitalization, deposits on our balance sheet would be able to grow by SEK 43 billion without breaching leverage ratio requirements. Finally, looking at leverage ratio and capital ratios. We see that the nonrisk-based leverage ratio requirement remains the main capital constraint for Avanza, and it's the most sensitive one as it's highly dependent on customer behavior. At the end of the period, it was at 4.7%, further improved, not only then by accumulated profits, but also by customers increased risk appetite leading to lower deposits and thereby, lower leverage ratio volumes by around SEK 8 billion compared to the end of Q1. All in all, we are well positioned both when it comes to both the risk-based and the nonrisk-based requirements. Having said that, I will hand back to Gustaf for some concluding remarks.

Thank you, Jonas. And to conclude, it's a privilege to once again summarize a record quarter. Having a business model with a well-balanced income mix that continuously take us to new heights is an incredible strength, but it couldn't have been done without our fantastic employees and through their engagement. We have maintained a high development speed and made great progress within our prioritized area during the quarter. In parallel to the Swedish business, preparations for our international expansion is moving forward according to plan. So I would say Avanza stands strong and is well positioned to capture future savings growth. And with that, we open up for questions.

[Operator Instructions] One moment for our first question. And this question comes from the line of Martin Ekstedt from Handelsbanken.

Can you hear me?

Yes, we can.

Great. So first question on costs. When you say staff costs are higher due to strategic initiatives, this does not include so much Denmark and I assume -- I mean you guided SEK 50 million of cost for the Danish expansion in '26, but you took just SEK 3 million in Q2 and 0 in Q1 then. At least I had this a bit more spread out in my model. So I just wanted to check, should we expect a very material portion of the remainder to flock towards Q4, i.e. very late in the year? Or do you see a more even split between the remainder of the 50 million on the last 2 quarters? That's the first one.

Yes. In the end, we don't guide how costs are split between different quarters. We only guide on the full year cost base. And still for the Swedish business, 9% holds. And when we talk about that we have made investments related to our priorities, that's related then to the cloud journey, private banking, pension, et cetera, as stated before. Then as you note that Denmark is completely separate from that, and that was only if you use that word, 3 million in the second quarter, that is simply due to the fact that we, in practice, from an accounting and disclosure point of view, started having Danish cost not until after we disclosed that we plan to go international, which started essentially from May and forward. And all costs, we always have costs related to preparing for the Denmark expansion. So they were not classified as Danish cost. Therefore, we expect to see a buildup of Danish cost later during the year, and we still believe it will be in the 50 million area. So therefore, there's a little bit too short of time to build up Danish costs during -- in particular, in May and June. I hope that answered the question, Martin.

Great. And then second question, if I may. There was a comment around higher market rates at the end of March contributing to better returns on the treasury portfolio, but with a lag. Could you -- given the rates are moving again, could you go into some more specifics on that lag effect, just the dynamics of it, please?

Yes. Where we invest or manage our liquidity portfolio, there is a mix of different assets than invest in but above is in different types of bonds, although we also place cash in the Riksbank and other systemically important Nordic banks. And there are some quite clear risk appetite boundaries within which the treasury team operates trying to find the best deal in relation to those risk boundaries. One of those is the tender in terms of liquidity of the portfolio they are maintaining, which we try to keep somewhat shorter than 3 months. This means that it depends a little bit on when different types of bonds get their interest repricing, but it is within a 3-month period. So you could look upon it as a 3-month moving average slowly moving forward. And therefore, when you had the increase in particular in this STIBOR rate towards the end of March and beginning of April, you can think of it as a 3-month moving average slowly moving across that increase in STIBOR rates, which gives some positive momentum into Q2 then.

Okay. That makes sense. And then could I just quickly ask one on currency revenue as well, please. I saw that currency-related revenue margins on foreign trading volumes came down about 1 basis point or just so that quarter-on-quarter. So looking back a bit, it's come down now from 25 basis points roughly around the time of the pandemic to 19 basis points currently. Is it competition driving this? Or is it more of a volume mix or pricing strategy or size of trades or mix it of?

It depends on the mix of customers trading. So we saw a slightly higher share from the banking and pro trading in the foreign trading volumes. So that's what drove the 1 bps decline in the quarter. And then looking at a year ago, we introduced the currency account. So I'd say that's the effect of that, which has plateaued now for a few quarters.

We are now going to move to our next question. And this question comes from the line of Jacob Hesslevik from SEB.

Two questions from my side. If we start on costs, you're right that this P&L line was slightly elevated this quarter due to less usage of vacation days. Does that mean we should expect a larger seasonality effect in Q3?

We don't specifically guide exactly what we believe the effect will be other than it will obviously relate do the total amount of staff and therefore, staff costs that we have. If you use that as a basis for going into Q3, hopefully, that could give an indication of the effect of the vacation debt reduction that typically come in Q3. There was a little bit effect on that during the first half of this year as well related to vacations in earlier this year.

Okay. And also, can you comment on how you foresee a requirement -- recruitment pace to look like for H2 as you have increased number of FTEs by 9% compared to last year?

I think if I look at last year, I think we were a little bit slow out to the start in finding the right competencies to drive the right pace of our strategic initiatives. I think in 2026, we have found really good professionals early on. So we're a little bit faster in building up the team that we want to have the pace forward that we want to. So we have been swifter to attract the right people this year compared to last year.

Okay. And just one final question, actually. On NII, can you comment anything on how deposit volume was intra quarters? I mean we know the end of month volumes, but was volumes intra-month higher as well compared to Q1?

I could say that, in general, if you look quarter end data, end of Q1 versus end of Q2 and take the average of that, you underestimate the average volume. If you use end-of-month data, which we disclosed publicly, you see more clear that reduction was towards the end of the quarter. If we were to use daily or weekly data, I would say, this quarter happen to have somewhat of a little bit more intra-month variation that was not obviously clear when using a month end or quarter end data.

We are now going to move to our next question. And this question comes from the line of Patrik Brattelius from ABG.

Can you hear me?

Yes, we can.

Perfect. So my first question is a follow-up then on NII. It was very strong in the quarter. But could you help us a little bit with the NII trajectory from here, considering that the liquidity portfolio was falling at the end of Q2 and the STIBOR is down here in Q2 compared to the start of the quarter. So should we expect NII to come down here? Could you elaborate a little bit on that?

Patrik, I would assume that since you're probably as good as we are in terms of estimating, in particular, where market rates will go, which will always be an important factor in this both the [ repo ] rate but then also the [ fiber ] rate and possibly bond spreads should those move, we should note that they didn't change that much during this first half of the year. You could always look at forward rates and see where that takes us, and that obviously has an important impact on margins on the liquidity portfolio, then you will need to take into account the interest rate profile of interest rate reset timings of our portfolio, that's difficult to estimate in detail. But typically, we have somewhat less than 3 months interest rate fixing them. And we don't -- it's difficult to guide specifically how that margin that would develop going forward. But you could see the impact of this fiber rate changes in March and April and how that impacted us in terms of margins. And when it comes to volumes, hopefully, going forward, it will be somewhat easier to understand the development since external savings account, in some way, clouded the underlying deposit rate development. Now for a few months, we have had just our own internal savings account, and that will obviously grow in line with total savings capital growth over time, but there will be some variations around that growth line based on customer risk appetite basically. So that's, I guess, the type of guidance we can give when it comes to the NII going forward.