Company overview - zipMoney Limited offers point-of-sale credit and digital payment services to consumers and merchants. The Company provides a range of integrated Retail Finance solutions to small, medium and enterprise businesses across various industries, both online and in-store. The Company offers its services primarily to the retail, education, health and travel industries. Its products include zipMoney and zipPay. zipMoney is classified as a continuing line of credit and generally applied to various ticket purchases where a promotional interest-free period is applied, between 6 to 24 months. zipPay is a no interest ever digital shopping account and generally applied to various ticket purchases, such as fashion, accessories, food and hospitality. It supports prime, near prime and emerging prime borrowers by providing those customers with a revolving unsecured line of credit to finance their transactions. Its platform utilizes a range of variables to deliver real-time consumer credit responses. 
 

ZML Details
ZML continues to gain traction from leading e-commerce groups: zipMoney Ltd (ASX: ZML) continued to gain traction and recently reported that Lux Group, one of Australia’s leading e-commerce groups, is joining on zipMoney payments platform which is an important milestone for the company. Lux Group has 15 premier brands, including Luxury Escapes, Living Social, Brands Exclusive, The Home, Spreets, The Gourmet and Cudo. Therefore, ZML is looking for working with Lux’s range of market leading brands across travel and leisure, fashion, homewares and lifestyle to strengthen their position. Additionally, the partnership with Lux Group will enhance ZML’s exposure to leading Australian enterprise e-commerce clients. zipMoney also finalized arrangements with Solahart Australia as interest-free partner post a successful pilot program, to enhance payment solutions. Meanwhile, the group has more than six million subscribers across Australia and New Zealand. ZML is a leader in the retail, health and education spaces and is rapidly becoming a dominant player in the travel and leisure sector. Apart from the recent wins, the payments option is currently live on Luxury Escapes, The Home and Brands Exclusive and more brands are expected to follow. Furthermore, the partnership would add to the million-plus members of Luxury Escapes, and will have the flexibility to book their holiday today and pay overtime in interest-free instalments.
 

Built solid client base over the years (Source: Company Reports)
 
Core products for ZML: The group has two major products in the consumer finance space - zipMoney and zipPay. zipMoney product is for major purchases wherein the promotional interest-free period is applied, between 6-24 months. This product is used in several sectors like retail, education, healthcare and travel. The minimum credit limit is $500 while the maximum is $20,000. The transactions do not have any minimum size restrictions. On the other side, zipPay is ‘no interest, ever’ digital shopping account and is used for smaller ticket purchases for sectors like fashion, accessories, food and hospitality. The group launched this product in the second quarter of FY16 to further target on daily transactions category, with lower average transaction values. This product works on a 60-day billing cycle wherein the customer gets extended payment flexibility. Maximum account limit is $1000 whilst the transactions do not have any minimum size restrictions. The group is constantly building their client base and won several retail clients like Open Colleges, Oz Design Furniture, Thermomix, Co-op in FY16.
 
Acquired Pocketbook: ZML had finished the acquisition of the entire issued capital of Pocketbook Holdings Pty Ltd for an upfront amount of $6.0 million plus a deferred consideration of up to an additional $1.5 million. This acquisition is consistent with ZML’s strategy to offer fairness and financial transparency for Australian consumers while enhance the ZML’s proprietary credit and fraud decision technology. The acquisition of Pocketbook complements ZML’s focus on helping Australians achieve the financial well-being. Moreover, Pocketbook team has already moved into ZML’s office and is providing valuable data analytics in credit behavior and real-time decision-making. Pocketbook is a market leader personal finance app and has more than 250,000 users, majority of which are mobile-based. Its unique acquisition methods enrich ZML’s work on credit modelling, allow the consumers to synchronize data with most Australian banks and receive enhanced categorization.
 
Strengthening management team: ZML is growing by making strategic hires across its platform. Recently the company hired John Gowland as Head of Enterprise Sales and Tommy Mermelshtayn as Chief Strategy Officer to support sales growth and data science capabilities. Moreover, ZML is working on an operating leverage model, and believes that by expanding their team, they would deliver better marginal benefits.
 
Extending capital position flexibility: The group got more than $110 million institutional debt facility from Victory Park Capital, a specialist US-investment firm while their equity raising in June 2016 was oversubscribed leading to a $20.6 million equity raising indicating a strong support from the investment community. ZML has asset backed, securitization warehouse, and receivables of about $68.4 million from which $63.4 million were currently drawn. The new securitization facility has the potential to halve the cost of loan book as the company is currently in discussions with one of the Australia’s big four banks in relation to a new securitization warehouse. The weighted average cost of existing debt facility is about 12% and a new facility would be expected to halve the weighted average cost of capital of the loan book. The completion is expected by the third quarter of FY17.
 
Business Model: zipMoney derives its revenue from Merchant and Customer fees. The group gets Merchant Service Fees on settled Customer transactions (drawdowns) from the group’s accredited merchant base on a daily basis. The group derives Customer fees from Establishment fees, monthly service fees, interest revenue, late fees and sundries debited and charged to active Customer accounts and form part of the Customer Receivables. But, zipPay does not derive any establishment fees or interest revenue. On the other side, ZML in FY 16 generated a 738% growth of customer fees while the Merchants fee rose 884%. As a result, the revenues grew 976% to $4.3 million. ZML has reported net loss for the year of $7 million that included the cost of listing as a function of reverse acquisition accounting. On the other hand, the group reported a 1296% growth in the loan book (receivables) to $40.7 million. Moreover, ZML has strong balance sheet with no corporate debt. 

Outstanding revenue drivers’ growth (Source: Company Reports)
 
First Quarter FY 17 Performance: ZML in the first quarter of FY 17 reported the revenue growth of 6% to $2.9m compared to the fourth quarter of FY 16. ZML has posted the transaction volume of $33 million in the quarter and more than $100 million originated on zipMoney’s platform. This is in line with the management forecasts. Moreover, in 1Q FY 17, there has been 62% growth in the transactions, with receivables growth of 47% and 86% growth in the customer numbers.
 

First quarter of 2017 Financial and Operational Performance (Source: Company Reports)
 
Data based organization: ZML has a valuable 100% owned proprietary fraud and credit risk decision technology while the use of Big Data supports a differentiated product with high barriers to entry. Moreover, the company is integrating the richer data and advanced analytics while the proprietary technology enables ZML to dynamically respond to changing market conditions, mitigating risk and maximizing profitable outcomes for the business. 

Data driven organization (Source: Company Reports)
 
Stock Performance: ZML has a strong pipeline of lighthouse brands that has quality and growth on the platform. ZML has invested heavily in the offline capability through both integrated and non-integrated payment options as close to 50% of transaction volume is now being generated offline. Moreover, the company is growing in the existing market opportunity within the initial more than A$100 billion market. ZML is also expanding their target market into A$15 billion travel and hospitality sector by fiscal year of 2017. Meanwhile, ZML also has a first mover advantage in the digitized consumer finance space and built a solid track record since 2013. The competition to ZML could also be limited due to high barriers of entry while their 100% owned proprietary technology and the use of Big Data would give them an edge. ZML seems to be a disruptive consumer finance and payments company that has a competitive and innovative product offering. The company growth is driven by ease of use and integration features of the products reflected through the rise in consumer and merchant base. ZML stock rose 19.70% in the last six months (as of January 09, 2017) and we believe this bullish momentum in the stock will continue in the coming months. We give a “Buy” recommendation on the stock at the current price of – $ 0.79

 
ZML Daily Chart (Source: Thomson Reuters)

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