MoneyMe: An expanding horizon
About the author:
- Author name:
- By Steve Sassine
- Job title:
- Associate Analyst
- Date posted:
- 15 January 2020, 2:21 PM
- We initiate coverage of MoneyMe (MME) with an ADD rating (Morgans clients can login to view detailed reports and price targets).
- MME is a consumer credit business that utilises its digital presence and technology platform to offer innovative loan products.
- MME’s addressable market is substantial at ~A$14bn (MorgansE) and we view its business model as attractive, driven by strong loan unit economics. We also see clear areas of further margin upside from here.
- Prospectus forecasts, which appear readily achievable in our view, have MME achieving a maiden profit in FY20 (pro forma Cash NPAT A$2m).
An emerging fintech lender
MME is a consumer credit business that utilises its digital presence and technology platform to offer innovative loan products.
MME’s competitive advantage stems from its technology (the Horizon Technology platform), which fully automates the loan process end-to-end, allowing loan applications to be processed in under 5 minutes.
If approved, the platform can disperse loans/extend credit not long thereafter.
We see MME as well positioned to take personal lending market share going forward, supported by a favourable regulatory environment and the convenience/efficiency of its digital service offering.
Strong recent loan growth and a large addressable market
In FY19, MME delivered impressive loan growth of 82%, with its IPO market update highlighting that 1Q20 gross loan originations were up 60% on pcp (comfortably ahead of the FY20 prospectus forecast of ~44%).
We view MME’s current addressable market as large at ~A$14bn (MorgansE) and note just 5% penetration into this market implies an 8x increase in MME’s loan book. This is before factoring in any potential expansions to new lending products or geographical markets
Strong loan unit economics will improve further from her
MME currently generates a healthy 42% net contribution margin per loan, with its favourable loan unit economics supported by a low cost of acquisition.
From here we see clear areas of upside for MME margins, predominantly:
- A declining bad debt ratio – as returning customers increase and MME’s AI credit decisioning improves with increased data
- Rising leverage – particularly on ‘general and administrative’ (G&A) expenses (~20% of costs and largely fixed)
- Declining financing costs – with MME already in advanced discussions with major banks for a new lower-cost debt facility
Valuation and key risks
We initiate coverage on MME with an ADD recommendation (Morgans clients can login to view detailed reports and price targets).
Our valuation uses a blended methodology, incorporating an equal-weighted DCF and EV-to-sales multiple.
Post becoming profitable in FY20, we forecast MME to produce greater than 100% profit growth in FY21 and FY22.
The key risks to our MME ADD call are:
- Credit risks
- Funding risks
- Competitive threats
- Regulatory risks
- Key personnel risks
Morgans clients can login to view our detailed report and share price target for MoneyMe (MME). Alternatively, please contact your Morgans adviser or nearest Morgans office for access.
Disclaimer: Analyst may own shares.The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.