Grenke H1 2025 presentation: Leasing growth solid but earnings drop 42% on higher provisions

Grenke AG reported mixed H1 2025 results, with leasing new business growing 6.7% to €1.6 billion and operational margins improving, including a CM2 margin of 17.3%. However, group earnings significantly declined by 41.8% to €26.2 million, primarily due to a substantial increase in the loss rate to 1.7% from 1.1% driven by higher credit defaults. Despite this profitability hit, management confirmed full-year 2025 guidance for group earnings of €71-81 million, implying a significant H2 recovery, underpinned by stabilizing risk provisions and strategic initiatives such as the new partnership with INTESA SANPAOLO.

Analysis

Grenke AG's first-half 2025 results present a significant divergence between operational performance and net profitability. The company demonstrated solid top-line momentum, with leasing new business growing 6.7% year-over-year to €1.6 billion, alongside improved efficiency metrics such as an enhanced CM2 margin of 17.3% and a reduced cost-income ratio of 56.4%. However, these positive operational developments were completely eclipsed by a severe impact from credit quality deterioration. A surge in the loss rate to 1.7% from 1.1% in the prior year led to a near-doubling of claims settlements and risk provisions, causing group earnings to plummet by 41.8% to €26.2 million. Despite this substantial earnings decline, management has reaffirmed its full-year 2025 guidance, projecting group earnings of €71-81 million. This forecast implies a very strong second-half recovery, requiring H2 earnings to more than double the H1 result, based on management's expectation that risk provisions are stabilizing at their current higher level. Strategic initiatives, including the acquisition of franchise companies and a new distribution partnership with Italy's INTESA SANPAOLO, are positioned as future growth drivers, while the company maintains a stable funding base underscored by a recent €500 million bond issuance and a 15.9% equity ratio.

Key Decisions for Investors

• Investors should closely monitor Grenke's quarterly loss rate, as its stabilization is the most critical factor for the company to achieve its ambitious H2 earnings recovery and meet its full-year guidance.
• The credibility of the reaffirmed €71-81 million earnings guidance is a key variable; failure to show a significant sequential profit improvement in Q3 could trigger a negative re-rating of the stock.
• Evaluate the early performance of the new partnership with INTESA SANPAOLO for signs of meaningful contribution to new business volume, as this strategic initiative is a key potential catalyst for offsetting the current credit-related headwinds.
• Given the sharp decline in profitability, investors should weigh the potential for a successful operational turnaround against the significant and persistent credit risk within its SME-focused loan book.