Broker Pools Part 2: Netfonds | Price and Value Aktienblog

Today I can finally (with a little delay, which is partly due to more research and the fact that I became a father) continue my little mini-series and come to the analysis of Netfonds. Netfonds is a Hamburg based company and started in 2000. Today Netfonds is the second largest broker pool in Germany as well as the largest independent liability umbrella and has over 4800 partners. Growth has been both organic and through acquisitions and has been remarkably high, growing at an average of 15% per year since 2015. Netfonds only listed on the stock exchange in 2018. According to the press release, the listing probably took place at a price of 29.50€, but this sank quite soon in the direction of 20€. In the meantime, however, the shares have risen again to 29€, which values Netfonds at around 60 million €, together with the 3 million € capital increase even slightly more.

Business areas

In order to understand the company, let’s first take a closer look at Netfonds’ business areas, as these are quite diverse and offer more than a classic broker pool. Here there are two possible ways of classification: via the defined 4 segments or by looking at the relevant subsidiaries.

  • Wholesale: wholesale for financial products (funds, insurance) – the classic broker pool business, margin is achieved through better purchasing conditions in the course of bundled market power. In 2019, this segment contributed 70% of revenue (though probably less share of gross profit).
  • Technology: outsourcing and software that help consultants. These service offerings and licenses can be booked by partners, Netfonds gets better gross margins from this than wholesale and ideally can also better retain partners to its own platform. Software as a Service usually has much more attractive return potential than trading, and lower margin pressure, so the area should not be underestimated. Revenue share 19% .
  • Regulatory: Essentially the liability umbrella (see subsidiary NFS). Here Netfonds is the largest independent provider and is recording clear growth. At the same time, the annual report explicitly refers to high regulatory barriers to market entry, which also explains the comparatively higher profits in this area.
  • Marketing & Products: Netfonds writes in the annual report: “Netfonds currently manages approx. 3 million
    insurance contracts in the wholesale segment, i.e. more than all insurtechs combined and approx. €14.6 billion
    investment volume (assets under administration, incl. fund advisory). Due to this
    high market volume, Netfonds represents an important market access for product providers such as insurers,
    custodian banks and investment companies.
    This creates economic
    opportunities and possibilities for the company in the medium to long term to achieve higher
    value added and thus consistently higher margins through an intelligent product mix.”

    In German: The margins on the product side are considerably higher than in the normal net fund business.At the same time, distribution and customer access is a key challenge for product providers – Netfonds, with its large network, is therefore ideally positioned to increase the depth of value creation here and to profit from the opportunities offered in the financial business.The company is also able to take a larger share of the often very juicy profits. This is likely to include the real estate business NSI and the newly acquired robo-advisor Easyfolio. This area is still very small, but is currently showing good growth and could become a strong earnings generator in the medium term.

The classification into subsidiaries additionally gives a good picture of the specific things Netfonds does. In addition, there are no more precise figures on the self-defined growth areas, but at least an annual result of the individual subsidiaries.

Therefore, to understand the earnings potential, one needs to have an understanding of at least the most important of these. For example, last year there was the strange effect that more income taxes were paid than profits were generated. If you look at the individual subsidiaries, this becomes understandable, for example, the young real estate division (for which there is no profit transfer agreement) made start-up losses. The problem is that these are of course included in the consolidated accounts, but could not be offset for tax purposes against profits from profitable areas.
So what are the most important companies?

Presentation of Netfonds subsidiaries (Source: Annual Report 2019)

NFS Netfonds Financial Services

NFS essentially provides a liability umbrella for independent financial and investment advisory


That is, Netfonds assumes regulatory responsibility for advisors who shy away from the high expense of obtaining their own BAFIN permit. Since the background for this was also not quite clear to me here once the explanation of Wikipedia


The term ” liability umbrella ” describes the exception regulated by banking supervision law in section 2 (10) sentence 1 of the German Banking Act (KWG). According to this, “an enterprise which does not engage in banking business within the meaning of section 1 (1) sentence 2 and which, as financial services, only provides investment or acquisition brokerage, placement business or investment advice exclusively for the account and under the liability of a deposit-taking institution or a securities trading enterprise which has its registered office in Germany or which, pursuant to section 53b (1) sentence 1 or (7), has its registered office in Germany, does not require a liability umbrella”. 1 Sentence 1 or Paragraph 7 in Germany (contractually tied agent)” does not require a permit from the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) if “the deposit-taking institution or securities trading company as the liable company notifies this to the Federal Financial Supervisory Authority”. In this case, the activity of the contractually bound intermediary is attributed to the liable company (under civil law). Consequently, claims cannot be based directly on Section 2 (10) KWG.

This concerns (as the name “Financial Services” already suggests) just not the pure insurance brokers, but the investment. The partners here are, for example, asset managers and private bankers. Since the current situation at many traditional banks is rather difficult (look at the tragedy at Commerzbank & Deutsche Bank) and the resulting internal pressure on customers and bankers does not cause enthusiasm, Netfonds can profit from a certain trend towards independent advice. Moreover, Netfonds is clearly the top dog and has little competition in the field. Netfonds itself writes:

<blockquote>383 financial advisory firms with a total of more than 500 advisors are affiliated with the NFS liability umbrella. The company benefits from the current market environment of the banks. Numerous restructurings and job cuts, especially in the private banking sector of German banks, are ensuring steady growth and high new partner potential. There is equally good acquisition potential in the target group of asset managers. Rising expenses for operating their own KWG license are prompting more and more asset managers to use the NFS liability umbrella instead of their own license. (GB 2019, P. 26)

NFS Capital

NFS Capital offers fund lay-ups – meaning fund managers can launch a fund under the umbrella of Netfonds, which then helps manage the regulatory and administrative hurdles. In 2019, it was the top-performing subsidiary, so this division, with 17 fund mandates (according to the 2019 AR), is highly profitable.

NFS Netfonds Financial Services and NFS Capital can probably be considered the most important subsidiaries in terms of valuation. Together, both are consistently strong revenue generators in the Netfonds group. Even more, when Netfonds acquired the outside shares in both companies at the end of 2017 (49% and 51% respectively), the paid for it with a capital increase of 665,000 shares at 1€ to then 2.1 million share . Based on this, the two subsidiaries would be valued at a total of 1.33 million shares, representing 63% of the share capital.

NFS Hamburger Vermögen

Hamburger Vermögen is a proprietary asset manager of the Netfonds Group. It offers standard strategies and the possibility for advisors to set up their own asset management strategies, which can then be offered to clients. The assets managed here are growing very strongly and already exceed €1 billion. Hamburger Vermögen is also clearly and consistently profitable, with a nice upward trend over the last few years.

NSI Netfonds Structured Investments

NSI is a subsidiary active in the real estate business. This activity has only been built up in the last few years and has still brought in losses in 2019, but according to the statement at the AGM, a profit is already virtually certain for this year. Specifically, apartment buildings are bought up here, possibly divided up and renovated, and then resold via the Netfonds partners as a capital investment. These properties are now a substantial item on the balance sheet, which raises the question of risk. According to Netfonds, however, this is narrowly limited: on the one hand, there is no obligation to assume losses, and on the other hand, only rented residential properties are purchased, so that a certain reliable cash flow can be achieved even if the properties remain in the portfolio for a longer period. The holding period is expected to be 0.5 to 3 years.

The balance sheet item “Land for sale” has increased from € 4.3 million to € 15.1 million from 2018 to 2019, here one can safely assume a decent margin and even further growth: If one were to turn over €10 million a year at a margin of 10%, one could already make a profit of €1 million – and that is realistic with an inventory of €15 million and a good sales pipeline. If you continue to grow and can, for example, turn over €30 million at a margin of 10%, then it could already be €3 million, an order of magnitude that is not realistic for me either. seems unlikely.

I am curious about the development and see high profit potential, at least in the short term, the market for real estate, driven by low interest rates, does not seem to cool down noticeably.

NVS Netfonds Insurance Service

This is the insurance broker pool of Netfonds. This is one of the largest in Germany, but as the table below shows, not the best profit driver for the group. However, things could get interesting here starting next year: Netfonds is part of a consortium that offers collectively agreed long-term care insurance – CareFlex – for all employees in the chemical industry. Hundreds of thousands of contracts (and customer contacts) are involved here, so this area could well have more to offer. More on this below.

Finfire Solutions

Finfire is responsible for the digitalization and automation of processes and was created by joining forces with competitor Maxpool. Here, the platform is programmed for the consultants. Since then, the company has been investing in the expansion of the platform and thus its own digitization, and these investments are also cited as the reason for the lagging profits. The platform is also intended to replace and standardize old systems, some of which are bought in externally. But the important thing is that the platform, its functionality and usability, is a decisive factor in competition. If the conditions are very similar for most providers, then the question as a customer is rather how good the software platform offered is. The competition also offers good platforms and you have to be able to keep up and ideally be even better.
Netfonds actually only has a minority share of 49% in Finfire, which is accounted for “at equity”.


This subsidiary was bought in 2018 (alright, the minority shares will be paid in 3 tranches until 2021) and since the end of 2019, the 20 or so employees have also moved into Netfonds’ premises. V-D-V stands for Versicherungs-Daten-Verarbeitung (insurance data processing) and offers services and software for processing insurance data. According to its own statements, the company is “the market leader for insurance data processing and a service provider for very well-known major customers.”
Unfortunately, the result has been negative so far since the takeover, but it was made credible at the Annual General Meeting that it is hoped that positive effects such as the relocation will soon put the company in the black here.

The following table shows the profits reported in the annual financial statements for important subsidiaries:

Earnings in € thousands in
selected subsidiaries
2017 2018 2019
NFS Capital 671 471 480
NFS Netfonds Financial Services 600 176 379
NFS Hamburg Assets 132 158 229
Finfire Solutions 47 257 80
NVS Netfonds Insurance Service 104 -118 -106
V-D-V -58 -332
NSI + NSI real estate companies -264 -362
Argentos 354 58 60</td>


Let’s get to the hard figures: What has Netfonds turned over and earned over the last few years?

Netfonds Group 2016 2017 2018 2019
Balance sheet total 21.834,00 € 25.960,00 € 41.403,00 € 56.261,00 €
Equity 4.739,00 € 5.802,00 € 11.487,00 € 10.718,00 €
Equity ratio 21,70 % 22,35 % 27,74 % 19,05 %
Employees >120 >160 194 214
Gross consolidated sales 70.137,00 € 85.986,00 € 93.607,00 € 113.279,00 €
Net consolidated sales
(gross operating profit)
14.377,00 € 17.118,00 € 20.188,00 € 26.466,00 €
EBITDA 1.907,00 € 2.585,00 € 1.386,00 € 3.439,00 €
EBIT 1.217,00 € 1.891,00 € -165,00 € 1.171,00 €
EBT 1.173,00 € 1.830,00 € -339,00 € 304,00 €
Consolidated net income 833,00 € 1.267,00 € -719,00 € -396,00 €

The figures show that the business has almost doubled in terms of gross profit between 2016 and today. You can also quickly see a peculiarity of the broker pool business: the revenue (which includes commissions passed through to advisors) is significantly higher than the gross profit the company actually earns for the incurred…

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