Peel Hunt analysts are positive about fintech
The fintech industry may be in hibernation, but analysts at investment bank Peel Hunt have taken a bullish perspective on the sector, comparing the evolution of space to that of the dot.com crash of 2000 and declaring that “fintech is the new internet”.
Analysts believe that the bursting of the fintech bubble in 2022 has helped to weed out the weak business models in the space and demonstrated the resilience of the rest of the providers, who are focused on profitable growth.
Gautham Pillai and Advika Jalan, Peel Hunt analysts, note: “Despite its very compelling long-term investment case, the fintech sector has fallen out of favor recently, which we believe is a myopic view of the space. We compare the development of the fintech sector to the evolution of the Internet sector, with 2022 reactions mimicking the Dot-Com crash of 2000. However, as we saw with the Internet sector in the following two decades, we believe that 2022 has helped to weed out the weaker business models in the fintech space .”
They note that currently internet companies such as Amazon, Meta and Alphabet make up a significant proportion of the Nasdaq. “With the current cost of living crisis likely to further catalyze fintech adoption, the fintech sector is expected to gain meaningful weight in the FTSE 100 over the next decade, making it the new Internet,” they argue.
The UK has a large fintech ecosystem, with 2,500+ companies, but only a small percentage of these are public. Peel Hunt speculates that high-growth categories will emerge in B2B, embedded finance, open finance and RegTech.
In addition: “Specialist fintech, which addresses specific verticals, customer groups and functions, has the potential to dominate in its niches and use it as a springboard to expand into nearby areas.”
Pilai and Jalan say: “The UK #fintech business case is characterized by a significantly better value proposition, large market opportunities and the ability to become the dominant player in the chosen arena. This translates into hyper growth that is likely to be sustained even in the long term, given the massive TAMs most of these fintechs operate in, typically ranging from multi-billion pounds to multi-trillion pounds.”
Peel Hunt recommends that the best way for public investors to gain exposure to innovative, growing private UK fintechs is through the dedicated venture fund Augmentum Fintech. In addition, among the listed names, analysts have positive views on Alfa Financial Software, Eckoh, Equals, Eurowag, Boku and Network International.
