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Ann: FY17 Results Presentation, page-113

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ValueTrader82

656 Posts.

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29/08/17

10:22

Post #: 26828529
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Originally posted by mal85 ↑

As usual a lot of uninformed commentary.
Based on published data the following hard numbers can be elucidated.
I will assume that the G&A, sales and marketing etc will exhibit significant operating leverage based on the nature of the platform and that as sales increase they will asymptote towards zero cost of sales. This is obviously not the case exactly but is illustrative for the following worked example.

A) Gross transaction margin:
1) 4% (but will go up in time as more smaller players use the platform and negotiating power increases)

B) interest

PA interest rate= 2.09 + BBSY (let's use 4.1% for now, although definitely less than this)
In the AR the average loan duration is <30 days, to be conservative lets use 30 days.
This means that the interest rate (using simple interest rather than compound for simplicity) is 0.34% (4.1%/12.175) for each loan

C) transaction costs
23% of revenue currently- let's assume 25% moving forward, although one would think this would drop after the merger
--> or 1% of each sale (25% of 4%)

D) losses
If as other posters allude to above, the bad debts are from 12 months ago and they are accumulating over time and that AfterPay is not provisioning appropriately, you would expect that the receivables > 61 days would be increasing as a percentage of current receivables over time.

It is quite clearly not- last FY it was 2.1% and currently it is 2.2% which is pretty close to rock steady given the enormous increase in sales. This implies that the provisioning is correct.

So what is the provisioning exactly??
The written off debts as a % of sales is 0.6% but let's be conservative.
Let's take away the current receivables from the total sales giving net closed sales of 457m and written off debts of 3266024. This gives a net transaction loss of 0.7%

So going back to the net transaction margin (IGNORING equity entirely) and testing most of the assumptions that the posters above have made we get:
4% - 0.34% - 1% - 0.7% = 1.96%

That is a very healthy margin even if you account for rising interest rates, downturns etc (although a core qualitative assumption of mine is that the platform will improve over time on loss metrics as it matures). Even if you take away 0.5% as a margin of error and then argue that there is some variable cost above (and that it is not all a fixed cost that will whittle away to nothing as the platform scales) and add 0.2% you get a net margin of close to 1.3%.

This gives a profit (pre-tax but after interest) of ~15m and a profit after tax of 11m on annualised sales of 1.2B.

If you go with more realistic assumptions for end of next FY, or less conservative and go with 1.6% margin on 2.5B in sales you get a PBT of 40m and after tax profit of 28m to work off (this kind of growth would generally command a PE multiple of >30).

Am quite happy for people to quantifiable dispute my calculations above or point out any errors in my assumptions with verifiable information...

Expand

Your cost of funds assumption is way too low... particularly this early on in the piece and is not taking into account the associated cost of funds of the $60m-$70m equity.

Mal, there are also a few fees you are missing here in regards to the securitisation warehouse:

- line fees/unutilised fees - usually 0.75% p.a to 1.25% p.a
- servicer fees, back up servicer fees -0.2-0.5%

@AllFuelledUp @dubspec ...

Last edited by ValueTrader82: 29/08/17

APT Price at posting: $3.58 Sentiment: None Disclosure: Not Held
1 Upvote

0 Great analysis

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