Update on GBank (GBFH)
Explosive credit cards growth, Still 5-10x Upside Potential
I have reviewed GBank's recent Q4 report and transcript. They have exceeded my expectations, especially for the credit cards division, and I will continue to slowly build the position.
Here is my original analysis of GBank:
Credit Card Growth is Skyrocketing
Credit card transaction volume exploded from $14 million in Q3 to $52 million in Q4—a 260% increase.
Even better, the momentum isn’t slowing down. Management disclosed that January 2025 saw credit card transactions hit $100 million, adding $33 million in less than a month. And they already generate ~$1.5mln transactions daily. That translates to a Q1 projection of $135 million ($1.5mln * 90 days) in transactions, representing another 100%+ QoQ growth.
They have also achieved break-even in Q4 and expect ~50% net margin from this operation. Here are my rough calculations for 2025 for the credit card division:
At $135 million in quarterly transactions and a 1.8% fee (based on the new numbers it seems more correct than my previous assumption of 1.65%), that’s $2.4 million in revenue and $1.2 million in net profit per quarter.
If growth continues at 50% per quarter, cumulative earnings over the next four quarters could reach ~$10 million, translating to ~$0.7 EPS (at ~14mln shares) or a $7 valuation at a 10x multiple.
Even under a more conservative 30% QoQ growth scenario, that’s ~$7.5 million in earnings, or $0.5 EPS, equating to a $5 valuation at a 10x multiple.
So, it’s now $5-7+ for the credit card division instead of what I previously estimated at $2-2.5.
Based on what the CEO said, I think these growth numbers are still achievable and not overly optimistic:
And then credit card is really the -- is kind of the interesting one to watch. We're still just scratching the surface, we think, in terms of what that market could represent.
Since launching in 2023, GBank has signed nine marketing referral agreements, adding one more in Q4.
Core Banking Remains Strong
NIM dropped slightly from 5% to 4.5%, mainly due to a 50 bps decrease in the federal funds rate. As I expected, the bank posted $1.4 EPS.
The good news is that GBank is actively repricing CDs to offset rate declines—$64 million in CDs were repriced lower in Q4, and another $120 million will be repriced lower in Q1.
SBA lending also looks healthy. Loan originations hit $500 million in 2024, bringing the total to over $2 billion since 2015. The pipeline is very strong:
But on the SBA side, we're sitting with one of the strongest pipelines that we've ever had, expanded pipeline of nearly $0.25 billion.
Here is a CEO’s comment about competition in SBA lending I particularly liked:
But in terms of competition to that question, there are a number of SBA lenders up there. It tends to be a pretty concentrated business. Some are really good at it. One of the things that really causes us to stand apart is our core competency in hospitality. We don't really have an effective peer competitor on that. 2024 would be the fifth year in a row that we were the #1 hospitality SBA 7(a) lender. We don't expect that to change. There are some banks that focus on hospitality, and they do a very good job in their own right. But a lot of times, that's not government-guaranteed lending, which is very specialized. So we feel really good about our competitive position there.
New Projects are Launching in Gaming
BCS is currently onboarding three new programs → expected to be active by the end of the first quarter of 2025:
BCS is working with two gaming operators as part of the latest Product Express partnership with MasterCard and i2c, which was announced in the third quarter of 2024.
Additional card issuing agreement for prepaid access services
They confirmed that the slot machine program (Konami/BoltBetz) is still extremely important to them and will launch soon.
The state lottery program has yet to launch. Although the state has already approved it, bureaucracy is in the way. In the meantime, their tech partner is pushing the state as hard as he can.
They are also working on some licensing transactions and are generally very active in this area, but payments and gaming are priorities since they offer more instant gratification in terms of earnings potential.
Uplisting Still on Track
GBank plans to become a fully registered SEC company by the end of Q1 2025, keeping it on track for a spring uplisting. Once that happens, I expect increased liquidity and institutional interest, which could further boost valuation.
Conclusion
Given the acceleration in credit card growth, my fair price estimate for the core banking and credit card divisions has moved up from $25 to $30-32. However, if I underestimated the growth the first time, I may underestimate it again. But I just want to be conservative with the valuation.
Anyway, like last time, I feel that we pay ~$10 for an option on all the potential gaming FinTech (licensing, lotteries, slot machines, etc.) opportunities plus higher-than-expected growth of the credit card division.
I will continue slowly increasing my position, but it is still less than half of my normal position (given that it’s not a screaming bargain at the moment).
Disclaimer:
I/we own shares of GBFH at the moment of publication.
This article is for educational purposes only. This is not an investment advice. I may buy or sell these securities at any time. Please see the full disclaimer here.