There’s certainly a lot of news coming out at the moment - either responses to ASX enquiries or general business news. I thought I would try to break some of it down to see if their proposal is realistic, at least in my view. You’ll have to excuse all the links and screenshots, but it seems there have been complaints that I am publishing unsubstantiated information - no idea who that could be - so I want to be clear on where the information is coming from.
Target Market
Firstly, let’s look at the demographics they are proposing to target. Their focus is the subprime market in the Southern States. Screenshot below from Page 6 of Ovanti’s “USA BNPL Market Entry Plan”
In the USA, according to government data, the Southern states are generally regarded as having the highest poverty rates. This is a longstanding pattern, with the South experiencing higher poverty rates compared to other regions. Click on link to view.
https://www.ers.usda.gov/data-products/charts-of-note/chart-detail?chartId=98028#:~:text=Home-,Highest%20U.S.%20poverty%20rates%20are%20in%20the%20South%2C%20with%20over,poor%20in%20its%20rural%20areas&text=People%20living%20in%20poverty%20tend,spread%20evenly%20across%20the%20Nation.
The main snapshot from the link is below
Being rated as the poorest demographic isn’t necessarily a bad thing. What is bad is checking which demographic of states has the highest debt default rate. According to the Urban Institute, counties in the Southern States have higher rates of delinquency and default compared to other regions in the USA, particularly for auto loans, credit cards, and student debt.
The link below shows default risk by geographic base. Note all the black and grey that dominate the southern states.
https://apps.urban.org/features/debt-interactive-map/?type=overall&variable=totcoll
So, with Ovanti saying they want to focus on subprime clients in the Southern States, it means they will be doing all their initial BNPL business in the poorest demographic of the USA, with the highest rates of delinquency payments according to the Urban Institute.
This is now where it gets interesting because under the Licence Agreement with BNPL Pay Protocol, BNPL Pay Protocol assumes the bad debts. See Page 2 of the agreement between them and OVT, as per the ASX announcement. Screenshot snippet below.
If this is the case, how many within BNPL Pay Protocol will be willing to lend money when they find out the demographic OVT is targeting is amongst the worst credit risks in the USA?
Or, how long will they lend money when the bad debts start hitting them?
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Financial Breakdown
Time to move onto the finance side based on the 101 page “US BNPL MARKET ENTRY PLAN” as per the ASX announcement the other week.
The basic breakdown submitted is as follows
Launch Costs: $18 million (see page 5 of the plan)
13M AUD build costs to get to market
5M AUD capital support for loan book funding
Funding Costs to Breakeven $30M - March 2027 (See Page 5 of the plan)
23M AUD run costs to achieve break-even
7M AUD additional capital support funding growth for the loan book
So, in total, based on the BNPL Plan shown by OVT, they will need $48 million of funding to break even. Bear in mind that this is to break even with BNPL. It does not include current running costs for other parts of their business.
The below are guesstimates based on current available data, but let's look at the current state of funds available to OVT based on what they have announced previously.
Estimated Cash Position
From the most recent December quarterlies, the reported figures are that OVT had $5.418M in cash.
This was as of 1 January, so let’s now look at some estimates of what they have left based on what they have previously reported
.
The half yearly report states from July to December they lost $4,734,891. (See Page 1 of their half yearly report).
Averaging this out over 2 quarterlies, average loss is approx $2.36M.
Based on this we could theoretically assume the same type of loss, or thereabouts in the quarter just finished as there have been no dramatic cost savings or added profit that have been announced to the market.
Loan Maturity
Then add approx $908K for the loan that matured end of March of which is safe to say they they had to pay out, as the convertible notes were at 0.02, so with a share price of 0.004 it is safe to assume the notes were not converted and the principal and interest had to be paid back in cash. This is on page 16 of their half yearly report - screenshot below
This means approximately $3.268M ($2.36M loss and $908K for the loan) less by the end of March. So the $5.418M they had at start of January is now down to almost $2M by the end of March - we’ll know if this is correct in a few weeks when the quarterly is released.
Total Cash Available
Let’s assume the immediate sale of IDSB has been completed and they get the $10.8M as per their announcement dated 1st April.
Then let’s assume the SPP is fully subscribed and they get the full $5,403,095.
Add that up - approximately
Cash: $2M
IDSB Sale: $10.8M
SPP: $5.4M (rounded)
Total = $18.2M
Looks like they have enough to get the BNPL launched, EXCEPT launch isn’t till October this year (see page 5 of their US BNP Market Entry Plan). That means 2 more quarters of costs. Based on average loss over the last 2 quarters ($4.7M approx as announced in their latest half yearly accounts), if they don’t reduce costs, or business conditions don’t improve, there is another approx $4.7M loss. Take that off the estimated $18.2M they have and now they only have $13.5M.
The above also doesn’t allow for a new CEO wage. Keast was on 500K, so you would assume to get someone of equal experience we would need to be offering at least that. Then you also have the loss of IDSB dividends. Last half-year report it was reported that OVT received $687,927 in dividends. This would be cut by ¾ when the sale goes through. Based on the below that means they would be receiving over $500K less in the next two quarters
The shortfall means they would have approx $13.5M by October this year based on published historical figures - then take off CEO wage and loss of investment dividends. That means at least one more CR of about $5M before October to be able to fund the launch of BNPL in USA if you go by the historical published figures.
Break Even
Then you have to wait till March 2027 for it to break (see page 5 of their US BNP Market Entry Plan).
October 2025 launch to March 2027 is almost another six quarterlies. If they don’t reduce their costs and/or increase their profitability on the existing business and continue to run at current losses, that means approx $2.3M loss per quarter x 6 = $13.8M!
Lastly you have their funding costs to break even in March 2027 - $30M (see page 5 of their US BNP Market Entry Plan).
.
23M AUD run costs to achieve break-even
7M AUD additional capital support funding growth for the loan book
That means 6 operating quarters of existing business and another $30M on top for BNPL.
Approx $13.8M - 6 quarterly losses of $2.3M based on current business
$30M - Additional funding costs
Total: Approx $43.8M
That amount is above what they currently have in the bank, allowing for a full uptake of the SPP and a sale of IDSB for $10.8M
How many shares are they going to have to issue to be able to raise all this operating capital? They currently have over 2.7B shares on issue - view link here https://www.asx.com.au/markets/company/OVT and snapshot below.
If the SPP is full taken up, that is another 1.3B shares - so 4B shares on issue and they are still short approx $43.8M to breakeven.
I’ll let you figure out how many more shares and how much more dilution they would need to do. In my opinion, I don’t see how this can happen.
(20min delay)