"Compared to some other peers in the BNPL space, 1% is extremely...

"Compared to some other peers in the BNPL space, 1% is extremely low."

Yeah, but it jolly well should be lower for QFE.
Much much lower, in fact, because in QFE's case - unlike other BNPL operators - the vendors (i.e,. the accounting/law firms) stand guarantor for the receivables.


"PS: how are you valuing QFE? Am I the only one using a price to book ratio LOL. "

That's a far more scientific methodology than the one I'm using.
(For starters, unless you know what ROIC the company will generate once it is at scale, how do you know what the appropriate Price-to-Book is?)

I've not done much more than say the following to myself:

Given the size of the potential market opportunity, the highly scale-able nature of the business model, and the traction already being demonstrated, this has the hallmarks of becoming a company that, over the next two or three years as the company reaches semi-mature stage of its evolution, it could easily be running $250m of Receivables (currently around $50m equivalent (A$36m and US$9m) - was $32m@ 31 December 2019 balance date).

On that basis, even if there is some softening of the highly attractive rate earned by QFE, when the business is at that sort of scale Interest Revenue would be close to $40m (for context, the current annualised run rate, on a little more than $30m of Receivables, is around $5.5m).

And Contract Revenue at that point could conceivably be somewhere between $15m and $20m (Currently around $2m annual run rate).

So, indicative Total Revenue of $55m to $60m (compared to current Run Rate of $7.5m pa).

Assuming not much change in prevailing interest rate environment (QFE's CoGS is comprised almost exclusively by Interest Expense), the Gross Profit line would be around $40m pa.

Current Cost of Doing Business is running at around $8m (G&A = $4.5m, Selling & Marketing = $1.0m, Customer Acquisition Costs = $2.5m), but even if that was assumed rose by a generous 50% over the next 2/3 years, to $12m pa, it would still result in an impressive $27m-odd in Pre-Tax Profit, and around $20m in NPAT (See shaded column in table, below, of possible P&L scenarios for QFE, below.)



At that level of earnings, one thing is for sure: given the prospective P/E multiple of just 6.1x based on that scenario, this company will be valued at a meaningfully higher level than its current $120m market cap.

(As an aside, it looks to me like the current market value of the business is, predicated on a forward P/E of around 14x, pricing in a Receivables book of around $150m; I see no reason why that level won't be surpassed quite easily.)

Of course, given the imprecise nature of this sort of exercise, its outworkings should be considered to be merely indicative, rather than prescriptive. As such, it doesn't offer any definitive valuation for the company; rather, all it does is to suggest that whatever the company's valuation at maturity ends up being, it will be meaningfully higher than the current market value.

So, despite the strong showing in the share price in recent months, while I can't say for sure by how much, I think the current market value still undervalues the company by a considerable margin.

From the moment I started conducting some first-principles research on this company earlier this year, it had the "feel" to me of a $100m to $200m company in the making.

Fast-forward 6 months to today, and I feel like that range should be tightened to end up a lost closer to the $200m end.

.