Prospa Group Limited

PGL Details

Introduction of New Junior Funding Partner: Prospa Group Limited (ASX: PGL) is involved in the provisioning of finance to small businesses. The market capitalisation of the company stood at A$287.2 Mn as on 27^th December 2019. Recently, the company announced that it has introduced a new Junior Funding Partner into one of its Australian Warehouse Facilities, which finances small business loans as well as a line of credit facilities. The company also mentioned that the facility has been designed to seamlessly scale up over time as PGL continues to expand its Australian operations and has an initial capacity of A$20 Mn. Junior Funding Partner has subscribed to Class B Notes in the warehouse facility and the transaction releases a capital amounting to $17.8 million. This transaction reflects an important part of the long-term capital management strategy of the company.

In another update, the company notified the market participants that it has been added to the lender panel of PLAN Australia and onboarding of the same is anticipated to begin in mid-to-late January 2020. When it comes to the performance of the financial year 2019, the company has launched its business in New Zealand and brought two new products to the market. The company reported continued momentum as well as strong demand, with originated loan volume amounting to $501.7 million, reflecting a rise of 36.6% as compared to the previous year. At the end of FY19, the company possessed a cash balance of ~$70 million to finance investment in the small business loan product in addition to the new initiatives in New Zealand, Line of Credit as well as ProspaPay. The following picture provides an idea of the funding capacity:


Funding Capacity (Source: Company Reports)

Expectation of Rise in Total Originations: For 2020, the company is anticipating total originations in the ambit of $626 Mn to $640 Mn, reflecting a rise in the range of 25% and 28% as compared to FY19. The company is expecting revenue to be at least $150 million in FY20. The company is planning to continue acceleration in the New Zealand market in order to secure market leadership. PGL is also planning to maintain its market leadership in the small business loan product in Australia and to continue to refine the best-in-class credit decision engine as well as data insights capability. The company will continue to make investments in the brand, customer acquisition as well as distribution partner marketing.

Stock Recommendation: Prospa Group Limited is planning to maintain focus on premiumisation of its portfolio and will continue to leverage the strength of its funding platform. The company is anticipating growth on the back of investment in new solutions like Line of Credit, ProspaPay and Mobile App. The business of the company happens to be strong, fast-growing with a continued commitment to putting the small business customers first. The company currently possesses a balance sheet, which is well placed for growth. Current ratio of the company stood at 12.17x in FY19 as compared to 6.37x in FY18. This reflects that the company is in a better position to address its short-term obligations. On the valuation side, the stock is available at EV to Sales multiple of 2.2x in comparison to the industry median (Banking Services) of 3.2x on TTM basis.  As per ASX, the stock of PGL is trading close to its 52-week low of A$1.650. In light of the decent liquidity position and balance sheet, and total origination guidance, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.880 per share, up 5.618% on 27^th December 2019.

 
PGL Daily Technical Chart (Source: Thomson Reuters)

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