April investor presentation with KL Khong, page-14

Hi again IOUers,

There have been a few comments on the HC threads about the current IOU Market Cap as a multiplier of prior year revenue.

If you’re not familiar with this, it’s one (rather simplistic) way of trying to determine how ‘expensive’ a company is, particularly an as-yet unprofitable one. As a recent example, on an EML Payments investor call, CEO/MD Tom Cregan noted they had agreed to purchase an EU open-banking player (Sentenial) at a price that represented 10x revenues - and that was considered a very conservative multiplier/price. In the transcript he says “we’re seeing the larger players in open banking have valuations north of 50 to 70 times revenues”. Now don't get excited yet - he was talking about (mature?) players in the EU market, and it was specific to Open Banking. However if we come back to the ASX, we can do a similar exercise on some of our own Fintech players (i.e. neo-lenders, digital payments, BNPL etc.) to see how the landscape looks.

Looking at the table below you’ll see when it comes to multipliers of revenue there does not appear to be any real pattern to it:



(Yes, Humm's multiplier of x1 is correct - I think this anomaly here is a combination of the fact they only launched BNPL in April 2019, have other main finance business streams, and aren't growing aggressively like the other BNPL players, hence the market must 'value' them differently. But I know very little about them so any holders here can set me straight. Also I may have missed some smaller Fintech players, but the Market Cap level below $200m was getting a bit small).

In IOU’s case, their revenue is the lowest on the list - FY20 revenue was just $6.51m - so any market cap over $200M is going to produce a multiple over 30x. It’s always going to be skewed if the revenues are in the six-digit ranges.

The moral of the story, in my non-professional opinion, is that given the recent management changes, partnership deals and capital raises, using FY20 revenue as a basis for determining how expensive (or not) this company is, is probably a bit misleading. The upcoming Q3 4C will likely give us a much better sense of possible FY21 revenues which is why, to my mind, the SP is in a bit of a holding pattern awaiting this release. Even so, I think the best indicator will be the Q4 4C (if the market wants to see more of the BNPL side) so a little patience may be required.

Good luck to all holders, always DYOR etc.

mondy