Grenke Navigates Earnings Dip with Strategic Shift to High-Margin Leasing

Grenke AG’s first-quarter 2025 results painted a mixed picture: while the company’s core leasing business grew robustly, elevated risk provisions drove a sharp decline in reported earnings. The financial services firm is leveraging this transition to double down on its small-ticket leasing dominance, even as it grapples with short-term headwinds.

Leasing Strength Amid Earnings Pressure

Despite a 43% drop in group earnings after taxes to €10.2 million (from €19.8 million in Q1 2024), Grenke highlighted encouraging trends in its leasing division. New leasing business rose 10.6% year-on-year to €740.6 million, with the CM2 margin expanding to 17.6%, outperforming the prior year’s 16.8%. This margin improvement, driven by disciplined pricing and portfolio optimization, aligns with the company’s 2025 target to prioritize profitability over volume.

The surge in risk provisions—€47.6 million compared to €26.7 million in 2024—was flagged as a strategic choice to bolster reserves amid macroeconomic uncertainty. CFO Dr. Martin Paal emphasized that these provisions are already reflected in the company’s forecasts, signaling confidence in future resilience.

Geographic Diversification and Strategic Shifts

Grenke’s regional expansion is a key driver of growth. The DACH region (Germany, Austria, Switzerland) saw leasing new business jump 20.6%, while Southern Europe grew 5.7%, led by Italy. Notably, the factoring business, now marked as “held for sale” to Teylor AG, reported an 8.6% drop in new business to €194.7 million—a deliberate move to exit a lower-margin segment.

CEO Dr. Sebastian Hirsch framed the factoring sale as a “strategic pivot” to focus on high-margin leasing, which now accounts for 74% of total new business. The phased transfer, starting in April 2025 and concluding by mid-2026, aims to streamline operations and reduce complexity.

Operational Momentum and Challenges

Operational metrics underscore underlying strength. Lease applications rose to ~171,000, with a 44.5% conversion rate, while the average ticket size increased to €9,734—a reflection of demand for higher-value equipment like IT hardware, which now dominates 29.3% of contracts.

However, the factoring business’s decline and elevated risk provisions have clouded near-term profitability. Analysts remain divided: Warburg Research sees long-term value (€30.00 target), while Kepler Cheuvreux advises caution (€16.00). The average target price of €20.58 suggests a market in wait-and-see mode.

Outlook: Balancing Short-Term Pain with Long-Term Gain

Grenke’s full-year forecast remains intact, with operating income up 20% to €67.0 million before claims, despite the provisions. The company’s focus on small-ticket leasing leadership—serving SMEs across 30+ countries—positions it to capitalize on tech-driven demand, particularly in IT and software.

The sale of factoring assets, while painful in the near term, aligns with a broader trend in financial services: de-risking portfolios to prioritize core strengths. With €2.377.7 billion in deposits and growing microcredit lending via Grenke Bank, the firm is building a fortress balance sheet to support future leasing expansion.

Conclusion

Grenke’s Q1 results reflect a calculated trade-off: accepting short-term earnings pressure to strengthen its position in high-margin leasing. The 17.6% CM2 margin and geographic diversification—especially in fast-growing markets like Italy and Germany—are clear positives. While the stock faces near-term volatility, the strategic pivot toward leasing leadership, paired with a €20.58 average analyst target, suggests the market is beginning to price in the company’s long-term potential. Investors should view the provisions as a necessary step to secure sustainable growth, not a sign of weakness.

With 20% operating income growth before claims and a disciplined capital allocation strategy, Grenke is laying the groundwork for a comeback—even if it requires enduring a temporary dip.