Earnings call transcript: Beard Energy's Q4 2024 results highlight digital growth

Beard Energy Transition Acquisition Corp (BRD) reported strong financial performance in Q4 2024, driven by innovations in digital banking and an increase in lending market share. The company reported a net result of 1.5 billion RON, with a return on equity of 16.6%. Despite a challenging economic environment, Beard Energy maintained steady growth in net banking income and expanded its digital capabilities significantly. Trading at $4.53, the stock has gained 18.68% year-to-date, and according to InvestingPro analysis, appears undervalued based on its Fair Value model.

Key Takeaways

• Net result of 1.5 billion RON with 16.6% ROE.
• Digital transactions surged by 30%.
• Lending market share increased by 70 basis points.
• Inflation in Romania slightly higher than expected at 5.1%.

Company Performance

Beard Energy showed resilience in Q4 2024, with net banking income growing by 5.2% year-over-year. The company focused on expanding its digital banking platform, resulting in a 30% increase in digital transactions. Despite reducing its physical branch network by 35 locations, the company enhanced customer service through improved contact center efficiency. InvestingPro data shows the company maintains a FAIR Financial Health Score of 1.81, with particularly strong performance in relative value metrics. For deeper insights, subscribers can access the comprehensive Pro Research Report, which includes detailed analysis of BRD's digital transformation strategy.

Financial Highlights

• Net result: 1.5 billion RON
• Return on equity (ROE): 16.6%
• Gross operating income growth: 3.6% (would have been over 10% without the turnover tax)
• Net banking income growth: 5.2% YoY
• Fees and commissions growth: 7.8%

Outlook & Guidance

Looking forward, Beard Energy anticipates further Central Bank rate cuts in the latter half of 2025, which could support additional growth in lending. The company remains committed to its digital transformation strategy and aims to maintain strong liquidity, with a liquidity coverage ratio above 220%. With a beta of 1.16 and revenue growth of 2.86% over the last twelve months, InvestingPro subscribers can access additional metrics and the company's next earnings report, scheduled for March 21, 2025. The platform offers exclusive ProTips and detailed analysis of BRD's market position among its peers.

Executive Commentary

"We are very satisfied with our commercial activity in 2024," stated Maria, a Senior Executive, highlighting the company's robust performance despite economic challenges. Claudio, a Macroeconomic Analyst, noted, "The remarkable increase in lending was possible despite economic slowdown," emphasizing the company's strategic market positioning. Madalina, the Digital Strategy Executive, added, "We continue to decrease our traditional network footprint while enhancing digital capabilities."

Risks and Challenges

• Economic slowdown: Continued slow growth in the Romanian economy could impact future performance.
• Inflation: Higher-than-expected inflation rates may affect consumer spending and cost structures.
• Regulatory changes: Potential changes in banking regulations could influence operational strategies.
• Digital transformation: Maintaining the pace of digital innovation is crucial to stay competitive.

The earnings call did not include a Q&A session, leaving some analyst queries unanswered. Nonetheless, Beard Energy's strategic focus on digital and lending growth positions it well for future challenges.

Full transcript - Beard Energy Transition Acquisition Corp (BRD) Q4 2024:

Maria, Senior Executive/Presenter, BRD: Hello. Yes, hello. Thank you so much. Hello, everyone. As usually, we will present today our full year unaudited financial results, which have been validated yesterday examined yesterday by our Board of Directors.

And I will start with Page four of the presentation with the snapshot and with the summary of our results. We are very satisfied with our commercial activity in 2024. As you can see on our slide, we have exactly in line with our strategy and our plans for 2024, a remarkable improvement of our lending activity. As we discussed in previous on previous occasions, we have focused on reactivating again our SME lending activity, which actually has been also a strategic priority for the past several years. Therefore, 19% growth of our outstanding loan portfolio, 29% growth of the corporate loans and a very, very, very good production of the retail business where we have new record related to the individual loans, 49% on the consumer loans year on year production and regarding new housing loans, 63% year on year, very satisfactory.

In both segments, we have gained market share. I will let after that my colleague in charge share with you the details, but in both corporate and retail, we managed to increase our market share at the end of the year. Regarding our commitment to the green financing and to support the sustainability transition, we have as of end of twenty twenty four, DKK '1 point '8 '8 billion new sustainable financing. And in total, we are far above our 2025 commitment during our previous strategy. So as you know, we have upgraded in the beginning in the middle of twenty twenty four, even this element of our strategy.

Deposits grew by 9% year on year. The reason being that compared to the very vivid lending activity, the reason being that we felt comfortable in terms of liquidity. We did not want to participate in price related battles with our competition. Therefore, 9% we feel comfortable with. 1,700,000 users of the UBRT, the mobile app for private individuals.

This number is representing 20% growth on yearly basis. All this excellent commercial activity brought GOI growth by 3.6%, I would say only 3.6% year on year. Why? Because we had this tax on turnover, which I mentioned on previous occasions as well, the 2% on gross turnover, which impacted our OpEx as we book it there. If we wouldn't have had these tax, we would be growing our gross operating income by more than 10%.

The NPL ratio, very healthy, 2.1% at the end of the year. The NPL coverage ratio, 78% is the end of the year. Both ratios, the NPL ratio and the coverage ratio, be it the above or better, actually, in the case of the NPL ratio, better in the case of the coverage ratio, better than the average on the banking market in Romania. In terms of cost of risk, as opposed to 2023, where we had actually release of provisions, we have R145 million provisions, which figure we are also comfortable because it is reflecting the return to normal terms for a bank, which is having intensive commercial activity even below our budget and expectations for 2024. Regarding the final result, the net result is at 1,500,000,000.0 drawn and the return on equity, a very good one of 16.6 in 2024.

So I now give the floor to Claudio to talk about the macroeconomics. But before that, I would like to mention that it's a very good confirmation of external one about very good financial and commercial performance at the end of twenty twenty four. We got the Bank of the Year award of the banker, a very reputable one, and it is the second year in a row. You can see on our Slide five the other recognitions, but I'm mentioning just the one of Bancor, which is coming for a second consecutive year. Paul?

Claudio, Macroeconomic Analyst/Executive, BRD: Thank you very much, Maria, and good morning, everyone. The remarkable increase in lending and in general our good results mentioned by Maria in the introduction were possible in spite of the slowing down in the economy that we witnessed in 2024, most probably the economy, even though we do not yet have the final formal figures, increased by slightly above 1% in 2020 For being supported mainly by the investment activity, we see all these public infrastructure projects that have been accelerated. And also with a good contribution from household consumption being supported by wage increases and also pension increases. Still, this is slowing down from the previous year in 2023, where the economy grew by more than 2%. As for 2025, we saw the first figures coming from the budget construction in the parliament now under discussion.

The government expects 2.5% economic growth. The inflation was stickier. Actually, the final

Madalina, Digital and Commercial Strategy Executive, BRD: figure in 2024, Andy, that 5.1%.

Claudio, Macroeconomic Analyst/Executive, BRD: This is higher than the initial expectations of the Central Bank at 4.9%, and this is due to food prices, but also due to some services showing inertia. And now the NBR expects the inflation to decline and to come down within their targeted quarter of 2.5 plus minus 1% at end twenty twenty five and to continue being consolidated within the corridor within 2026. Having in mind this stickiness in inflation, it was no surprise that the Central Bank took a pause in continuing its easing in monetary policy after the first two cuts last year in July and August. And the stance is now for them to rather expect to see the budget construction and the budget management and to also see the evolution in inflation still embarking again on subsequent cuts. Therefore, it will be probably realistic to expect additional cuts not earlier than the second quarter twenty twenty five or even in the second half of twenty twenty five.

Money market rates somehow showed this impact of higher inflation. So after initially having seen some easings in the first half of twenty twenty four, they went a bit higher at year end. But this is also due to a decrease in liquidity that we saw, quite an important one. In 2024, the highest the peak liquidity was at the 60,000,000,000 and the year end, that was down towards DKK 20,000,000,000. And part of it may be linked to the interventions the Central Bank did in 2024 to defend the currency knowing these vulnerabilities in fiscal deficit and current account deficit that at a certain point in time created some preoccupation for investors.

Proceeding further with the Romanian banking sector, the indicators remain robust. Capital adequacy almost 25% But the EU average also comfortable levels for loan to deposit ratios and the liquidity. Whereas as far as asset quality indicators are concerned, they continue to be strong even though we saw a marginal increase in the NPL ratio, 2.54 in 2024 compared to 2.37 in 2023. A bit higher than the EU average, which is 1.9, but somehow this is mitigated by the coverage levels, which remain strong at slightly below 70% and which are more conservative than those we see in EU at 42%. And I would end with the macroeconomics and I look forward to Madalina to continue.

Madalina, Digital and Commercial Strategy Executive, BRD: Thank you, Claudio. Hello. Actually, I will start saying that the very good commercial performance rely on two levers. One was a very well and disciplined sales management activity within across the segment. The other one by extending the digital footprint and enhancing the service capabilities into the digital environment.

So this is why actually even '24 was showing double digit increases in number of users in our digital platform, almost 30% increase in transactions that confirm the engagement in the activation of the customers into the digital environment. We continue to actually have above 96% of the payments of corporate and around 98% of retail customers via digital channels, as well as saving deposits. So daily banking has increased significantly into the digital ecosystem. This was supported by initiatives that actually engage and increase the engagement of the customers into the digital platforms like loyalty programs, the cashback that really launched only for half a year, Rich recorded records in terms of enrolled customers, almost above $500,000 new initiatives like RoPay, we were the third bank across the ecosystem of the new payment launched by Transformed, as well as lending activity like APIA or any other, let's say, new initiatives that activate the customers into the environment. I will mention the investment funds that has been launched in the second half of the year, visualization buying and selling investment funds in India.

This actually give us the possibility to reduce the traditional network footprint. So we continue to decrease with 35 branches year on year, while enhancing and extending 16% the cashless approach with reaching two twenty five, 20 fourseven, 19 points in which the customers can actually perform daily banking transactions. We as well enhanced and improved, raised the bar for the contact center, improving the service quality in the interaction with the customers. We improved basically the service level reaching 80% of the calls in the first twenty seconds and handling successfully handling 97% of the cost. This performance has been also recognized externally by receiving by being awarded the best internal contact center of medium size.

Moving forward, as Maria mentioned, in the lending activity, we have a very had a very, very good performance, also over performing within the market. Within 2024, December '20 '20 '4 versus December 2023, we increased our market share in lending by 70 basis points, an amazing performance of 110 basis points into the commercial lending and 30 basis points into the private individuals lending. The amazing performance of commercial lending has been supported by both governmental programs and our own products in lending. We according to the Fenugetainment statistics, we've been the number one bank in using the capabilities of the governmental programs. So this actually supports our growth in lending 19% year on year, in mainly in corporate and commercial lending almost 30%.

Leasing portfolio also show a robust growth last year, surpassing the $2,000,000,000 RON outstanding, reconfirming our capabilities to diversify our product portfolio in front of the customers. In retail, as Maria mentioned and we as it is reflected here, so significant growth in both loan production and the stock. The market share in mortgage has a significant gain, so we rely a lot on long term commitment and relationship with the customer consolidating our position in the market. Of course, this growth in lending has relied significantly on the sustainable economy. As it was mentioned by Maria, we overpass our target of green financing.

We mentioned here three of the landmark transaction that has been supported and performed by BRD team. And we also mentioned the new partnership with IFC and EIF that is aimed to support even further the green transition of our customers. Our contribution to the ESG environment has been also supported by the third edition of the Climate Change Summit in Romania that reached 1,300,000 people worldwide watching live to this event and has been rewarded and confirmed also by Fitch that has upgraded BRD SG entity ratings to two from three, increasing of course the score of our entity. As Maria mentioned, we also grow the solid deposit base, almost 9%, balance between the retail deposits and corporate deposits. We continue to have a strong granularity and reliable deposit base.

However, during 2024, we also focused on diversifying our asset based

Maria, Senior Executive/Presenter, BRD: asset

Madalina, Digital and Commercial Strategy Executive, BRD: product by increasing significantly the sales into the asset management, our entity BRD asset management reached midyear the first position and consolidated and kept the number one position in the market at the end of the year. This actually, again, proved the and Fidelis program in which we participate during 2024. In this Fidelis program, through our bank, we sold 28% of the bond. We had 28% market share in this activity. And this is another confirmation that our customer received product very much diversified based on their needs.

I will hand over to Vladimir to talk about the liquidity position and please Vladimir.

Vladimir, Financial Officer, BRD: Thank you, Madalina. Good afternoon, all. I will start with the liquidity. So as Madalena described the development of the deposits, our liquidity remains strong. We are keeping our loan our liquidity coverage ratio above two twenty percent, while the loan to deposit exceeding 73%, which is the result of more dynamic lending activity, which we have witnessed in 2024, followed by the deposit growth.

The liquidity remains strong as we rely as well on our high liquidity buffer of 32 mainly composed by high quality liquid bonds and we have therefore sufficient liquidity to support our growth as well in 2025. Moving into the NBI. As a result of this like very strong and solid commercial results, we can say that our NBI was growing 5.2 year over year, driven by both NII and deposits. The NII fueled as described mainly by the growth of the loans, a bit tempered by our cost of funds mainly due to the term deposits and regulatory funding, which we have in our books and reflecting as well the profitability of our business. For the fees and commissions, fees and commissions adding year over year 7.8%, driven by the higher revenues linked to the packages and to the growth of activity of our clients and as well by the growth of our client base, which we achieved in 2024.

And slightly like contracted by our strategy in the self socials in the cash operations, where we invest heavily into the self-service of the clients and on the efficiency on the caged lending on the branches. In the other income, we have one off provision which was booked already in Q1 and the provision leads to the via the finance loan portfolio, which was already booked in the first quarter. Moving to the OpEx, I can say the OpEx was well controlled during the whole 2024. As Maria already mentioned, in 2024, we were impacted by the newly introduced tax on turnover, on which we paid the newly DKK 129,000,000. If you would deduct this additional cost, which we did not have in the past, our OpEx could develop year over year stable.

The main area where we invest our resources are the staff expenses, which are growing year over year 4.9%, still visible below the inflation of 2024. And we as well invested in the non staff expenditures in our IT development, our IT and digital capabilities. This slight investment in the under costs, we were able to offset by the savings in real estate and in our sales of branches as we are like demanding as well our physical footprint. Same both NBI and OpEx development, if I look at the VOI and the positive jaws, which we can see without the additional tax of turnover, we will be growing 10.2% of VOI, which is very, very dynamic and solid results for 2024. I would hand over now and leave the floor for Philippe to comment the cost of

Madalina, Digital and Commercial Strategy Executive, BRD: risk. Thank

Vladimir, Financial Officer, BRD: you, Vladimir.

Philippe, Chief Risk Officer, BRD: Good morning or good day to everyone. So 28 bps, that's the cost of risk for 2024. Actually, I'm quite happy that we respected the guidance. The nature of the CRO is always to be cautious and sometimes over pessimistic. So I hope that we don't suffer the curse of Cassandra.

In any case, when you look at last quarter, we were probably or the mood was more negative, the outlook more uncertain. And so when you look at the first three quarters, we were on this consistent level of cost of risk. And actually on during the last quarter, we did better. So the portfolio is very resilient. And you see it also in terms of NPL.

We were comfortable on not having an explosion of the NPL and being able to manage them by the end of the year. So at 2.1% with also still very comfortable coverage ratio. We are quite happy with these results. So I'll hand the floor back to you, Vladimir.

Vladimir, Financial Officer, BRD: Thank you, Philippe. So I will continue with the capital position. We have a solid capital base and solvency ratio is almost flattish, moving from 23 in 2023 to 22.7% in 2024, composed by several drivers. First, we improved by incorporating 30% of the profit of 2024. We have a small revaluation of our February bonds, which we have within our portfolio, leading to risk weighted assets driven by the loans are only mildly worsening the capital of the solvency ratio.

As you know and we communicated already in the past, we have concluded this SRT transaction with the World Bank, with IFC, part of the World Bank, which is allowing us to despite this dynamic growth in our balance sheet to have only marginal impact into our risk weighted assets. All in all, our position, as I said, is very strong. Our capital requirement is slightly higher for 2020, '20 '20 '5, but still we're having sufficient capital available for supporting our business. Regarding the dividend distribution, we are not announcing the dividends today. There is still discussion between us and the National Bank of Romania and the final distribution of the dividend will be subject to the approval of National Bank of Romania.

And then we'll go back to Maria for the conclusion.

Maria, Senior Executive/Presenter, BRD: Yes. We were quite fast today because the results were quite easy and enjoyable to explain. Just to repeat and hope it will not be too boring to repeat three times today that we are very happy with our commercial performance across segments, across products and including the digital channel. Regarding the profitability and the performance financial performance, this of course has been reflected in this excellent commercial activity has been reflected there. And if we exclude the OpEx impact of this new tax, which we commented several times, we have very solidly drawn our result and our gross operating results notably with very positive jaws.

Cost of risk, very comfortable absolutely comfortably within the guidance Philip gave some time ago, even below. And our ROE above 16% at 16.6% also satisfactory with good capital levels despite this very dynamic commercial activity.

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