ASX-listed wage advance play Beforepay says it is no longer...

ASX-listed wage advance play Beforepay says it is no longer losing money on each transaction as the controversial fintech reported an $11 million loss in its first set of interim earnings as a public company.

Beforepay – which has lost two-thirds of its value since its January 17 listing – said income had increased fivefold to $5.94 million compared the first half of 2021.

The fintech charges a 5 per cent fee to customers it describes as “Aussie battlers” seeking an advance on their pay cheque, and has an average loan size of $240.

Chief executive Jamie Twiss told investors the result was “strong” and hailed the milestone of achieving positive unit economics, in which Beforepay was no longer losing money on each transaction.

That is based on the fee paid by customers less loans losses, funding and transaction costs.

A decline in the net transaction loss rate of 2.9 per cent from 7.4 per cent at the start of 2021 allowed Beforepay to report a net transaction margin of $360,169 versus a $1 million loss in the first half of 2021.

That figure was generated by $132 million of funds advanced through the half-year period.

Listing pains

“The path to cash flow breakeven for us is essentially about continuing to improve that net transaction margin, and then continuing to grow,” Mr Twiss told The Australian Financial Review.

The interim result was welcomed by investors as Beforepay shares rallied 7.83 per cent before closing 2.61 per cent higher during the session at $1.18. However, they remain well below the $3.41 listing price.

Though Mr Twiss was encouraged by the revenue growth and positive transaction margins, the business reported a sharp increase in costs, and therefore losses, as it expanded its lending activity.

Once operating costs, such as rent, marketing and salaries, are added Beforepay reported a negative adjusted earning before interest, tax, depreciation and amortisation of $11.9 million, a quadrupling of the $3 million loss in the previous first half.

The company revealed a near 10-fold increase in advertising and marketing costs to $6.79 million compared to the first half of 2021, accounting for about half of the $12.76 million of operating expenses.

However, Mr Twiss painted an upbeat picture of the firm’s prospects and told analysts that February was “smashing records” as Beforepay was averaging $1 million of advances a day for the first time.

He said Beforepay had strong customer advocacy that had helped to grow its user base from 46,000 a year ago to 139,000 at December 31, 2021. These customers include supermarket workers, teachers, tradies and gig economy workers.

Beforepay reported a statutory loss – which included capital raising costs and adjustments to the value of its convertible bonds – of $19.63 million for the half year.

The company marketed and priced an initial public offering in November 2021 via Shaw & Partners and E&P Financial. But the shares only commenced trading on January 17 and promptly slid 42 per cent on their first day, amid a broader sell-off in the fintech payments sector.

The $35 million proceeds of the initial public offering, which completed in January, lifted the cash balance from $6 million to $37.6 million.

That balance is only marginally higher than the $49 million market capitalisation at Beforepay’s current share price of $1.24.

Continue to invest

Mr Twiss said Beforepay was looking at growth options including an overseas expansion – noting that $7.6 million of the IPO proceeds had been earmarked for that purpose – although he stressed no final decision had been made.

He said the company would be “very judicious about how we spend shareholder funds”.

“What everybody would like – our current shareholders and any future shareholders – is for us to continue to grow net transaction margin and to continue to grow the business, and we will continue to invest to do this.”

The net transaction loss rate remains a crucial factor in the company’s path to profitability. While that metric slid to 2.7 per cent in the September 2021 quarter, it edged back up to 3.3 per cent. Mr Twiss said this was expected and due to seasonal factors.

He said a potential increase in interest rates was inconsequential to the business.

The company now borrows money at 11.77 per cent, with debt funding 80 per cent of its loans.

However, since each loan has a duration of 20 days, the cost of funds per transaction is less than 0.52 per cent and would increase to only 0.56 per cent for each 1 per cent increase in funding costs.