Ann: 3Q24 Trading Update - MONEYME Executes Key Strategies, page-5

Interesting to see 61.4m crossing of MME this morning. My guess is that this is Perennial fully selling out, rather than Regal. Who is the buyer? It can’t be Somers unless they immediately announce a takeover.

“Net credit losses at4.8% for 3Q24 (4.6%, 2Q24; 5.9%, 3Q23), up on prior quarter in line withexpected seasonality, while the significant reduction on pcp reflects theincreasing credit quality of the book. Loans with an Equifax credit score ≥ 600increased to 87% for 3Q24 (86%, 2Q24; 82%, 3Q23)”. This is disturbing: MME is losing half of Net interest margin (10% for 3Q24) just on credit losses, before any overheads. This is despite the “increasingcredit quality of the book”. Since 87% of MME’s loans have an Equifax score of ≥ 600 it means one of two things: either the loss rate for customers with scores under 600 is huge, or the loss rate above 600 is still quite large (or both). Perhaps 600 is not a sufficiently high point to infer that credit quality is “acceptable”: maybe MME should reset this threshold to 650 or even 700, to get the loss rate down, even at the expense of lower volume. Given MME’s types of assets, these loss rates compare unfavourably with (for example) Humm’s consumer book and very badly with Humm’s commercial book.

I too wondered about your point whether MME can use all the $667m undrawn securitisation facilities, as MME now has $25m unrestricted cash (after 8 March). As a crude comparison, at 30/6/23 restricted cash was 6.7% of gross debt drawn (75/1115) and at 31/12/23 it was 248/1034 = 5.4%. This shows that that the restricted cash % required by securitisations is rapidly coming down. I understand (from limited discussion) that market rates for restricted cash (i.e. user equity) have been rapidly reducing over last 9-12 months, with restricted cash required now being generally under 5% and in some recent cases as low as 2% of gross debt facility. Of course that would also depend on the asset quality being funded. In March MME announced that one its facilities was doubled and it also allowed for $10m of restricted cash to be released (i.e. a substantial lessening of market cash equity rates even since 31 Dec). After that, MME now has about $25m of free cash. If the currently unused facilities (most of which must reside in the latest doubling announced in March) required an average 5% cash equity level, applying all the $25m free cash would allow $500m more debt to be used. However, if the average cash equity rate required for the undrawn debt was now only 3.75% this would allow all the $667m to be used (which seems plausible). (Can’t be sure as they haven’t provided the relevant figures at 31 March). Since MME’s assets’ origination rate is running at about $140m per quarter (gross, before loan repayments) even a $500m usage would take over a year to be absorbed. I feel more comfortable that MME’s free cash level won’t be a constraint on growth, at least for the next 12 months, and thus MME shouldn’t need to raise new equity. However, I’d like to hear other views from people who have more knowledge of MME and the securitisation sector. Of the two main points here, I’m more concerned that MME management seem satisfied with what still appear to be poor credit losses. I would like these to be 3% or less.