Had a look at this one out of interest, given the growth in...

Had a look at this one out of interest, given the growth in online disruptors to more traditional financiers and potential for growth.

At this stage I'm not entering but will keep a watch. There needs to be a large increase in loans written per month to make this business profitable, if I can get further confidence that this will occur at the level required, then will look to enter. Managements target of $100m per annum would be the type of level I would want to see, but the business is way off that at the moment. Work on increasing distribution channels to date appears to be positive and there has been increasing volumes, however they are still tiny, compared to what is required for this to be a profitable business and to justify the current market cap (which is very small anyway).

I would like to see some management forecasts on volume growth and more see through on base expenses and fixed and variable costs to show the expected break even point and profitability growth at different levels. I have done my own rough analysis on the following basis which indicates around the $6m+ per month in volumes required to be written per month to reach break even/small annual profit, and even with this level of loans written there is a significant amount of time required for the loan book to build scale to contribute meaningful revenue from admin/management fees on the book.

- $4m base underlying business expenses - assumed to be be relatively fixed (however there would be some variability based on increases in volumes). $4m figure based on most recent half year management commentary on underlying net loss of around $1.6m + approx $400k in revenue received;
- Average loan term of 48 months to calculate monthly run-off on the loan book;
- 2.5% in origination fees received upfront on new loans written;
- 2.5% in admin/management fees on the loan book, spread over the average assumed loan term of 48 months
- 1% per month in interest return per month on the loans held in the 30 day holding facility

Even if the business reaches these levels of volume they will need to finance any losses while the book reaches sufficient scale, which will take some time. I'm not confident that this won't mean further capital raising and potential dilution. Once scale is reached then profits could grow strongly, given base fixed costs are then covered (i.e. the cost base only grows incrementally with further loans written).

Just my thoughts, so do your own research. I'll keep a watch on this, may be worth looking at, however volumes will need to grow substantially and will need to have confidence in the financing of losses up until that point, as well as the arrangements for offtake of loans written and that the buying arrangements will provide sufficient sale on profit and/or management/admin fees.

Management appear to have good experience, which is one of the reasons I will keep on watching.