Hoist Finance AB: A High-ROE, Capital-Efficient Play in the European NPL Market

In an era where capital efficiency and operational discipline are paramount, Hoist Finance AB (FRA:4HF) stands out as a compelling case study in strategic execution. The Swedish non-performing loan (NPL) manager has not only navigated the complexities of its industry with precision but has also positioned itself as a capital-efficient growth story, leveraging a resilient portfolio strategy, disciplined cost management, and a clear-eyed focus on the SDR transition. For investors seeking exposure to the European NPL market, Hoist offers a rare combination of immediate upside and long-term durability.

The Case for High ROE and Strategic Resilience

Hoist's Q2 2025 earnings report underscored its ability to deliver robust returns. The company reported a 14.7% return on equity (ROE), with an underlying ROE of 16.1%—a 240-basis-point improvement year-over-year. This outperformance, even after accounting for non-recurring costs like a negative VAT ruling in the Netherlands, highlights the company's operational strength. The underlying ROE reflects a business that is not only resilient but also adept at isolating core performance from short-term noise.

The driver of this performance is straightforward: disciplined portfolio expansion and cost control. Hoist added SEK 2.6 billion to its investment portfolio in Q2 2025, bringing the total book value to SEK 31 billion. This growth is underpinned by a 17% year-on-year increase in portfolio value and a collection rate of 104.4%, a testament to its ability to convert non-performing assets into cash-generating ones. The company's underlying profit before tax of SEK 335 million (compared to SEK 310 million reported) further illustrates its capacity to absorb costs while maintaining profitability.

Capitalizing on the SDR Transition

Hoist's strategic pivot toward Specialized Debt Restructurer (SDR) status is another critical catalyst. By 2026, the company expects to achieve SDR designation, a regulatory framework that allows for more flexible capital treatment of NPL portfolios. While the full benefits of this transition have yet to materialize, the groundwork is already in place. The company comfortably met SDR criteria in Q2 2025, with a CET1 ratio of 12.52% and liquidity reserves of SEK 26 billion. These metrics suggest a balance sheet that is both robust and flexible, capable of absorbing future regulatory changes while maintaining growth momentum.

The SDR transition also aligns with Hoist's cost structure. The company has already absorbed costs related to preparation for the designation, including IT in-sourcing and operational optimization. This disciplined approach ensures that the benefits of SDR—such as reduced capital requirements—will likely flow directly to profitability without requiring additional overhead.

Navigating the European NPL Market

The European NPL market remains a fertile ground for Hoist's expertise. With a pipeline of SEK 1.9 billion in post-quarter investments and a focus on mid-Europe and Southern Europe, the company is capitalizing on regional dislocations and regulatory tailwinds. Its outsourced servicing model and strategic partnerships further enhance its ability to scale efficiently, avoiding the pitfalls of overleveraging.

The company's liquidity position is equally compelling. A Net Stable Funding Ratio (NSFR) of 143%—well above the regulatory threshold—gives Hoist the flexibility to deploy capital aggressively while maintaining prudence. Management has signaled intent to optimize this ratio in H2 2025, which could unlock additional capital for portfolio expansion.

Investment Thesis: A Capital-Efficient Engine

For investors, Hoist presents a unique opportunity: a business that generates high ROE through a combination of operational excellence, regulatory foresight, and strategic capital allocation. Its underlying ROE of 16.1% is not just a number—it is a reflection of a company that understands how to extract value from complexity.

The immediate upside lies in its ability to execute on its SDR transition and scale its portfolio to SEK 36 billion by 2026. The long-term durability, however, is rooted in its cost discipline and liquidity resilience. With a CET1 ratio that allows for further leverage and a collection performance that outpaces industry benchmarks, Hoist is positioned to compound value for shareholders even in a more cautious regulatory environment.

Conclusion: A Play for the Prudent

Hoist Finance AB is more than a high-ROE story—it is a masterclass in capital-efficient growth. For investors with a medium-term horizon, the company offers a rare combination of immediate operational momentum and long-term structural advantages. The European NPL market, still in its growth phase, provides a fertile backdrop for Hoist's disciplined approach.

In a world where capital is king, Hoist Finance has built a business that not only survives but thrives. It is a reminder that the best investments are not just about growth—they are about doing more with less. And in that pursuit, Hoist has already won.