B-North is raising capital ahead of getting its banking licence (due spring 2020). It will then attack the huge, profitable and poorly-served SME lending market. B-North combines i) state-of-the-art technology (built from scratch to address customers’ needs), ii) offering the £20bn+ p.a. commercial broker market an unparalleled service and an innovative remuneration model, and iii) experienced bankers based in empowered regional hubs. It should be more efficient than its peers, and will use technology to be close to customers. The financial model assumes a market share of just 2.5% in 2027. Delivery of this sees a highly profitable, and valuable, business, in our view.
- Near-term capital raises: B-North is currently raising up to £2m through private subscriptions through the Growthfunders and Crowdcube platforms. It anticipates raising a further £20m (through Berenberg), conditional on the approval of the banking licence due in March 2020. Further raises are planned.
- “Reality-check”: We have reviewed the company assumptions and believe them to be ambitious but credible. We have considered the absolute performance and the level of lending that peers have achieved. Importantly, B-North has multiple options to address any volume shortfall – most at a modest cost.
- Valuation: Given the growth profile of the company and associated uncertainties, any valuation must be treated with extreme caution. We provide a range of approaches (p46-48) that, on average, indicate B-North’s value in 2027 could be treble the amount of equity raised. We also provide a range of sensitivities.
- Risks: Credit risk is key for any bank. B-North will establish independent credit functions, and its technology will bring it close to customers interfacing directly with its management information. It has multiple options to address any loan growth shortfall. The economic cycle is important. The model is yet to be tested.
- Investment summary: B-North is still at the pre-revenue stage. Its model should be low-cost and deliver a superior service to customers and intermediaries. It has a conservative credit culture and uses state-of-the-art technology, written from scratch, to originate, service and manage its business. Funding will be via the deep best-buy retail deposit comparison sites. The potential market is huge, profitable and under-served, and major incumbents have selectively become uncompetitive.