Company Overview: Plenti Group Limited (ASX: PLT) is a technology-led consumer lender. The main objective of the company is to provide borrowers with efficient, simple access to loans delivered through enhanced digital experiences. It also provides investors an opportunity to invest in its segment of consumer loans and derive attractive returns in the process. It offers loans in the three credit verticals of automotive lending, renewable energy lending and personal lending.

PLT Details

Growth in Loan Originations & Portfolio to Drive Revenue: Plenti Group Limited (ASX: PLT) is into the business of consumer lending through its tech- platform. The market capitalisation of the company as on 23 March 2021, stood at ~$156.25 million. The company has established a second warehouse funding facility of $100 million renewable energy and personal loan warehouse facility on 11 December 2020. This development is expected to provide a funding cost-benefit of ~300 bps on originations, which will give further comfort to the loan unit economics. The funding was financed by a major domestic bank and mezzanine funding came from two new domestic investors.

The company believes that customer expectations are evolving with time, and they should have access to simple and affordable lending. Its platform strives to provide the best lending experience to its customers.

PLT has been on a growth trajectory and reported impressive financial performance in the December 2020 quarter, with an increase of ~58% in loan origination growth to $130.9 million compared to the previous corresponding period. It delivered a 3-year compound annual growth rate (CAGR) of ~60% in the loan portfolio to 31 December 2020. The loan portfolio stood at $508 million during the same period end.

December 2020 Quarter Performance (Source: Company Reports)

Growth in Large Lending Markets: The company offers its services in the automotive, renewable energy and the personal finance space, and each of them is undergoing a structural, regulatory and technological change. For instance, banks and traditional lenders are making an exit from the automotive lending space due to the high cost involved and its inability to adapt to technological upgrades. Moreover, the purchasing and financing of cars have moved to online platforms which augurs well for PLT's business. The renewable sector also saw a decent growth with an increase in demand for household solar requirements and an increase in battery adoption. This provides a financing opportunity for the company in the long run. With the advent of new-age banking products and establishments the bank market share has been declining, as consumers are moving to value-based products.

Market Prospects (Source: Company Reports)

Scalable Funding Platforms: The company has access to diverse capital funding at competitive rates, which are utilised to fund customers across its different platforms. It has $275 million funding facility in the automotive warehouse segment and $100 million for the personal loan and renewable energy finance warehouse. PLT has over 23,000 registered investors in its Plenti Lending Platform, which provides funding flexibility and enhances the scope for expansion into new verticals. It utilises the Plenti Wholesale Lending Platform to fund automotive loans and the funding is accessed from banks and Government entities.

Launch of Interest-Free BNPL Finance: As per a recent update, the company has launched an interest-free BNPL finance product for the renewable energy technology space, on 4 March 2021. PLT expects the product to benefit its customers in installing residential renewable energy technology such as solar panels and batteries. It believes that the launch of BNPL finance is a key strategic step in its expansion plans.

Top 10 Shareholders: The top 10 shareholders together form around 48.44% of the total shareholding, while the top 4 constitute the maximum holding. Foggo (Marjorie Jean) and Carsales.Com Ltd are holding a maximum stake in the company at 20.97% and 6.34%, respectively, as also highlighted in the chart below:

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

Key Metrics: The company reported a consistent high gross margin performance during the H1FY20-H1FY21 period. The assets to equity ratio stood at 9.65x during H1FY21 and the debt to equity ratio stood at 8.44x during the same period end. The company’s operating margin has been improving over the period to negative 25.5% as of H1FY21, compared to negative 40.3% as of H1FY20.

Growth Profile and Profitability Metrics (Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

Key Risks: The major risk that the company face is that the borrower might default on the loans made from its lending platforms. Moreover, the Plenti Lending Platform facilitates retail and institutional investors to invest in consumer loans, thus exposing them to default from the consumer side. There is a possibility of borrower default owing to specific circumstances such as a downturn in personal finances or its business prospects. Macro events such as the onset of the COVID-19 pandemic have the potential to impact the financial position of the borrowers in a negative way and might impact the profitability of PLT in the medium term. In case of widespread borrower default, the company might witness a loss in fee revenue and capital or third-party funding. The company has also a high level of debt on its balance sheet and the total long-term debt stood at ~$449 million as of 30 September 2020.

Outlook: The company has delivered impressive growth in the performance of its key metrics, despite the impact of the COVID-19 pandemic on the economic environment. It will continue to look to build scale and expand its product portfolio. PLT recognises the need to provide a seamless digital experience to its customers and will continue to invest in its proprietary technology platform. It will also look for further improvement in the credit decision-making process and will try to automate the setup.  

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:  The company expects that the growth momentum will sustain in the fourth quarter of FY21 and is optimistic on its business prospects in FY21. As per ASX, the stock of PLT is trading below its average 52-weeks’ levels of $0.905-$1.435. The stock of PLT gave a negative return of ~4.80% in the past three months and a positive return of ~6.45% in the past one week. On a technical analysis front, the stock of PLT has a support level of ~$0.926 and a resistance level of ~$1.099. We have valued the stock using a P/CF multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company might trade at some premium to its peer average P/CF (NTM trading multiple), considering the impressive growth in loan portfolio, presence of scalable funding platforms, access to low-cost funding and positive outlook. For the purpose, have taken peers such as Moneyme Limited (ASX: MME), Credit Corp Group Limited (ASX: CCP), Money3 Corp Limited (ASX: MNY), to name a few. Considering the expected upside in valuation, robust growth in loan originations and optimistic outlook for FY21, we recommend a ‘Buy’ rating on the stock at the current market price of $0.990, up by 7.027% as on March 23, 2021.

PLT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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