MoneyMe Limited

MME Details

MoneyMe Limited (ASX: MME) is engaged in the provision of retail consumer finance. The company provides personal loans and credit card solutions to consumers. The market capitalization of the company as of 28 June 2021, stood at ~$360.02 million.

Q3FY21 Update:

The company outperformed the originations run rate with $108 million originations, an increase of 111% on pcp. Gross customer receivables stood at $233 million, an increase of 63% on pcp. As the Group continues to leverage its bank warehouse facility, funding costs reduced to 6%. The period witnessed Strong Credit & Book Quality where the Average Equifax score of the book increased to 644 points, as compared to 638 in the previous quarter. Revenue in the period stood at $15 million, as compared to $12 million in the previous quarter. There was a further reduction in its core operating costs margin to 9%, as compared to 12% at the end of the previous quarter.

Result Performance (Half-Year ended 31 December 2020 – H1FY21):

The company reported decent financial performance with a ~12% revenue growth to $23.9 million from $21.3 million in the previous corresponding period. Originations grew by ~21% to ~$114 million during the period. The receivables growth exceeded expectations with customer receivables of ~168 million, which is an increase of ~32% on the pcp. The company reported that 47% of the customer originations were driven by returning customers, which further improved the loan unit economics. MME was able to reduce its funding cost to 8.7% from 12.5% in pcp, with the establishment of a new Major Bank Warehouse Facility. There was an improvement in the core operating cost margin to 11.8% in H1FY21, compared to 13.2% in H1FY20. MME reported a statutory NPAT of $1.3 million during the period under consideration.

Financial Summary (Source: Company Reports)

Outlook:

In the latest trading update, MME posted a 384% increase in originations in May 2021 (YoY) to reach $57 million. The launch of secured vehicle financing showed robust traction. It had raised $22 million in a mezzanine note from the existing investor, which helped to increase the capacity of the Horizon 2020 warehouse facility to $256 million. The company expects further revenue growth in H2FY21, reflecting impressive originations growth from Q3FY21 and anticipates increased receivables growth in the second half of the year. The company has a diversified suite of products that further enhances its addressable market in the future. It has the benefits of access to the low cost of capital and will look to deliver high operating leverage through further automation.

Key Risks:

The company is susceptible to key risks such as Credit, Liquidity, Regulatory Compliance, Operational, People, Customer & Brand Reputation and Financial Performance.

Valuation Methodology: Price/ Book Value Multiple Based Relative Valuation (Illustrative)

Stock Recommendation:

The stock of MME gave a return of ~+57.35% in the last three months and a return of ~+51.77% in the last six months. The stock is trading above the average of the 52-week low price of $0.920 and the 52-week high price of $2.300. MME stock has rallied ~76.92% from a low of $1.30 made on 04 May 2021 to a recent 52-week high of $2.30 tested on 28 June 2021. The prices are now hovering around the horizontal trend line resistance zone at $2.203 on the daily chart. Furthermore, the momentum indicator RSI (14-period) is trading in an overbought zone (~76.09 levels), indicating a possibility of downside correction from the current level. An important support level for the stock is placed at $1.98, while the key resistance level is placed at $2.203. We have valued the stock using the Price/Book Value multiple-based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in percentage terms). We have taken peers such as Plenti Group Ltd. (ASX: PLT), Zip Co Ltd. (ASX: Z1P), EQT Holdings Ltd. (ASX: EQT), to name a few. We believe that the stock can trade at a slight discount as compared to its peer median Price/Book Value (NTM trading multiple) on the back of low scale of operations and inherent investment risks in the financial services industry. Considering the increasing debt levels, declining ROE in H1 FY21 (YoY), the current trading levels, and valuation, we advise investors to book profit. We give a "Sell" rating on the stock at the current market price of $2.230, as on 28^th June 2021, 1.10PM (GMT+10), Sydney, Eastern Australia.

MME Daily Technical Chart, Data Source: REFINITIV 

Note: The yellow color lines in the chart represents the resistance and support.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

• Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

• Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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