Prospa Group Limited

PGL to Focus on Premiumisation of Portfolio:Prospa Group Limited (ASX: PGL) is a provider of cash flow products and services to small businesses and has so far originated over $1.35 billion in loans across Australia and New Zealand. The company has recently been added to the lender panel of PLAN Australia, which is one of Australia’s largest aggregation groups with over 1,600 members. PGL’s onboarding on the panel is expected to commence in January 2020. In another recent update, the company notified that Gregory James Ruddock, one of the Directors, acquired 100,000 ordinary shares for a total consideration of $199,992.

FY19 Highlights: During the year ended 30 June 2019, the company reported revenue amounting to $136 million, representing an increase of 31% on prior corresponding period revenue of $104 million.The company originated loans amounting to $501.7 million in FY19, up 36.6% on pcp. EBITDA for the period came in at $6.8 million, down 12% on the prior corresponding period. In FY19, the company reported a y-o-y increase of 5% in average volume, depicting an improvement in volume per customer. Loans were also simplified with simple annual interest rates ranging from 9.9% - 26.5%, attracting a broader range of customer profiles. The company also launched a mobile app for Business Loan and Line of Credit to enhance customer experience. At the end of the year, the company had 20,068 customers using its platform, up from 12,730 customers in FY18. Two-year customer CAGR for the period covering FY17 – FY19 stands at 80%.


FY19 Performance Summary (Source: Company Reports)

Going forward, the company is aiming to secure market leadership in New Zealand through investment in new solutions including, Line of Credit (RUN), ProspaPay (PAY) and Mobile App. Moreover, the company aims to maintain its market leadership in the small business loan product in Australia. To strengthen its foundation in the Australian market, the company will continue to invest in brand, customer acquisition and distribution partner marketing. Moreover, it will focus on premiumisation of its portfolio through market penetration, improved portfolio quality, lower funding costs and lower loss rates.

Financial Guidance:At the end of CY19, the company expects to report originations amounting to $574 million. Revenue and EBITDA are expected to be $144 million and $4 million, respectively. For the year ending 30 June 2020, originations are expected to be between $626 million and $640 million, representing a growth range of 25% - 28% on FY19. Minimum expected revenue for the year is expected to be ~$150 million. 

Stock Recommendation:The stock reported a negative return of 38.21% in the last one month and made a new 52-week low of $1.675 as on 19 December 2019. The recent addition to the lender panel of PLAN Australia is expected to expand the already vast network of partners by ~14%. The company is currently doing well in the Australia market and is accelerating to attain market leadership in the New Zealand market. It is continuously investing on improving its core product to offer loans at reduced interest and enhance the customer’s journey on its platform. Considering the performance in FY19, growth strategies, plans to improve performance in key markets, decent FY20 guidance and current trading levels, we give a “Speculative Buy” rating on the stock at the current market price of $1.680, down 2.89% on 19 December 2019.

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