I'm looking at the trend lately (last 1-2 years). The business...

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danbradster

6,249 Posts.

1555

13/08/24

18:15

Post #: 75190129
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Originally posted by SteveSage: ↑

$20m is not a lot of cash for a business of this size in terms of running costs (~200m per annum) or balance sheet (~1.2bn in loan book).

You don't need a lot to go wrong for that cash to disappear very quickly; I'm sure the finance team would have done the numbers, but they would have to retain a decent buffer over minimum requirement given what business they are in.

With interest rates coming down next year (or at least that seems to be the market prediction), then you'd hope that there would be other parties out there who would be prepared to front up with a loan at better rates than PEP have provided (on the proviso that yield on other debt is going to fall), but a lot can happen between now & then.

What may help to repay that debt is what they seemed to have done in March.....they built the commissions into the funding facility which then freed up MME's own cash (that they were paying upfront and collecting over the term of the loan), which added to their unrestricted cash. It means they earn less on that loan, as they end up paying interest on the commissions, but it frees up their own cash to either increase their use of unused facilities (remember they still need to put up their own cash to use those facilities), or pay back the loan to PEP (which is probably more punitive than having to pay interest on the commissions that they have added to the loan).

They will have to have a plan in place by May/June next year on that PEP loan, but we still have 8-10 mths where they have to continue their disciplined execution and continue to strike those financing deals

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I'm looking at the trend lately (last 1-2 years). The business went from extremely leveraged, to now less so. From NTA being 1% of loans, to now being more decent (5%+ from memory). It feels less risky than previously, and now with less interest due to PEP (cut down to $50m outstanding, and a lower IR now, but still high).

Accumulating interest on commissions - I'm happy about that if it means paying eg. 7% interest, but using the cash to pay off the 13-15% PEP.

Some chance of a rate cut at the next meeting:

Expectations of a decent fall in the next year:

MME Price at posting: 8.6¢ Sentiment: Buy Disclosure: Held
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