Company Overview: WISR Limited (ASX: WZR), formerly known as DirectMoney Limited, is a marketplace lender, which provides personal and business lending services to Australian consumers. The company was listed in 1989 under diversified financials industry group. The company underwrites personal loans for three, five and seven-year maturities to the Australian consumers, then on-selling these loans to retails, wholesale and intuitional investors. WZR’s Warehouse Platform went live in November 2019, which is the go forward funding source for writing personal loans.
WZR Details
Growth in Loan Originations to Drive Revenue: WISR Limited (ASX: WZR) provides personal loans to Australian consumers. The market capitalisation of the company as on 29 January 2021, stood at ~$202.82 million. Recently, the company has released decent Q2FY21 performance wherein the company’s Wisr Warehouse loan funding facility has been increased to ~$250 million. This was made on the back of accelerating loan originations growth in Q1FY21 and decent loan book performance.
WZR has built a sustainable and scalable business model with an objective of securing financial wellness for its consumers. It has adopted an omnichannel strategy to reach out to the customers and has a fully-digital product suite for enhancing customer experience. The company’s approach to responsible lending and credit performance has positioned it well for growth in FY21 and forward.
During FY20, operating revenues grew by 136% to $7.2 million from $3 million in FY19. New loan originations were up by 95% to $135.9 million during the same period. The company’s total loan originations stood at $244.9 million as on 30 June 2020. There was an improvement in the portfolio arrear, with 90+ day arrears of 1.44% as on 30 June 2020, compared to 1.59% in FY19. The cash position of the company stood at $37.97 million during FY20 end.
FY20 Financial Performance (Source: Company Reports)
Decent Q2FY21 Performance: WZR has delivered a resilient performance in Q2FY21, with a loan origination growth of $83.8 million, which is a 35% increase on Q1FY21. The total loan originations stood at $390.5 million as on 31 December 2020. As per a recent quarterly update, the company has reported operating revenue of $5.9 million during the quarter, an increase of 43% on Q1FY21. It reported a decent average credit score of 757 in Q2FY21 against Australia average credit score of 600, validating the company's approach to risk governance and superior lending model. WZR is well capitalised with $29 million in cash and liquid loan assets as on 31 December 2020.
Loan Origination Growth Over a Period (Source: Company Reports)
Quality Customer Base: The company has an attractive customer base with an average income of $86,686 and has an average customer credit score of 714. It reported a penetration rate of 0.45% in FY20, as a share of total personal loan applications.
Prime Quality Customer Base (Source: Company Reports)
Improvement in Credit Quality: WZR has reported a gradual decline in the 90+ day arrears, to 1.01% as on 30 September 2020 from a level of 1.66% on 30 September 2019. As per a recent quarterly update, the company reported a further reduced 90+ day arrears to 0.79% as on 31 December 2020. The arrears were in line with APRA’s regulatory approach. This reflects the company’s ability to lend, without compromising on its credit performance.
Improvement in 90+ Day Arrears (Source: Company Reports)
Business Expansion through Wisr Ecosystem: WZR has introduced over 239,000 Australians to the Wisr Ecosystem as on 30 June 2020. As per a recent update, the total profiles stood at 345,475 as on 31 December 2020. It includes impactful and unique products, aligned to the financial wellness of its consumers. The Ecosystem is driven by deep data insights of customers, and the customers introduced through this platform are 2.5x more likely to settle a loan. Over $1 million in consumer debt has been repaid through the Wisr App as on 30 June 2020.
Top 10 Shareholders: The top 10 shareholders together form around 48.94% of the total shareholding while the top 4 constitute the maximum holding. Adcock Private Equity Pty.Ltd and Alceon Liquid Strategies Pty. Ltd. are holding a maximum stake in the company at 15.74% and 11.09%, respectively, as also highlighted in the chart below:
Key Metrics: During FY20, WZR reported significant improvement in the liquidity profile. The company reported an improvement in the current ratio to 12.77x, compared to 8.94x in FY19. The cash cycle days also improved to 162.8 days in FY20, from 435.1 days in FY19. The debt to equity ratio stood at 2.41x as on 30 June 2020. WZR reported borrowings of $86.71 million during the same period end, which is a significant increase from $2 million in FY19.
Profitability Metrics and Liquidity Profile (Source: Refinitiv, Thomson Reuters, Chart Created by Kalkine Group)
Key Risks: The company operates in a sector where there is a probability of the customers defaulting on their loans, making WZR vulnerable to credit risks. There may be instances when the loans are unsecured and are not backed by any collateral, thus giving rise to more vulnerability. In order to mitigate the risk, the company undertakes extensive credit study of its borrowers. The Group’s business model and sustainability is linked to its ability to source sufficient funds in third-party funding, and also to sell its loans. WZR is dependent on borrowings for its major part of funding, and hence is exposed to interest rate risk. Any major fluctuations on the interest rate, might have an impact on the profitability of the company. There was an increase in the borrowings of the company to $86.71 million in FY20 million from $2 million in FY19. The warehouse trust funding stood at $85.59 million during FY20.
Outlook: The company believes that its core lending products will drive revenue growth in FY21. There is immense potential for growth with over three million personal applications expected per annum. It also expects to make inroads in the vehicle sales financing market with over $33 billion annual market for consumer vehicle financing. WZR will further look to leverage its omnichannel distribution including the Wisr Ecosystem, direct to consumer partnerships and broker channels. In a recent update, the company has announced that it will release the unaudited FY21 half-year results for the period ended 31 December 2020, on 01 February 2021.
Valuation Methodology: Price to Sales Based Market Multiple Valuation (Illustrative)
Price to Sales Multiple Based Market Multiple Valuation (Source: Refinitiv, Thomson Reuters)
Stock Recommendation: The company had achieved core cash flow profitability in H2FY20, under the Wisr Warehouse funding model and delivered improved unit economics and operating leverage. As per ASX, the stock of WZR is currently trading slightly below its average 52-weeks’ levels of $0.065-$0.340. The stock of WZR gave a positive return of ~32.14% in the past nine months and a negative return of ~2.63% in the past one month. On a technical analysis front, the stock of WZR has a support level of ~$0.176 and a resistance level of ~$0.206. We have valued the stock using Price to Sales based market multiple valuation method (discounted 3x to five years average considering the company’s exposure to unsecured loans, and the risks factors arising out of the uncertainty in the business environment due to the impact of COVID-19 pandemic) to FY21E consensus sales of $23.85 million and have arrived at a target price of low double-digit upside (in % terms). Considering the current trading levels, robust growth in loan originations, proposed funding facility increase for the Wisr Warehouse, decent financial performance and optimistic growth prospects of the company, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.185, as on 29 January, 2021.
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WZR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
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