Hi fellow HCers. I have spent some time putting together a rough research report for PIL. At this stage, I have changed my position from soon-to-be investor to passive bystander and hence will not be putting any further effort into this. All the same, I hope this provides some valuable information.
This is not intended to form a basis for investment - as always, DYOR.
Business Summary
Peppermint Innovation Limited (PIL) is an Australian based, ASX-listed public company which operates an established Mobile Banking, Payments and Remittance Platform, and develops new and innovative mobile phone applications aimed at providing financial inclusion to the unbanked. Although PIL is an Australian based company, its primary market focus initially is in the Philipines, where it has an operating subsidiary. PIL also has intentions to enter other markets gradually.
PIL has already reached a degree of market penetration in the Philipines, with partnerships with 3 of the top 10 deposit taking banks in the Philipines (Metrobank, Unionbank, and UCPB). Currently 44,000 users from these 3 banks use the Peppermint platform. PIL also targets general population that have no association with a traditional bank via a mobile remittance platform to capture transactional flow outside of the traditional banking system. This market alone is estimated at 534 million transactions per year with a value of USD$$38.4b, generating USD$1.14b in transaction revenue. PIL has agreements with MyWeps and 1BRO Global to leverage the Peppermint platform for mobile money services. 1BRO Global has approximately 70,000 agents and 40 business centres within the Philipines. Subscriptions to the mobile money service are assumed to number 66,000 (given the provided total of 100,000 subscribers).
Forecast
PIL is targeting revenues of USD$50m over the first 5 years of operations. EBITDA targets are unknown, although the established M-Pesa of Safaricom, which operates a mobile money service in Kenya, achieved an EBITDA margin of 40% in the most recent financial year. Given that PIL is likely to have a low regular cost base, centred primarily on staff costs, marketing, and product support and development, an EBITDA margin of 40% does not seem unrealistic. Applying this EBITDA margin would result in a target EBITDA of USD$12.5m over the first 5 years of operations. Based on a constant growth rate of 50% YOY, this would see an EBITDA margin of USD$0.95m in the first year of operations, with USD$4.8m in the fifth year of operations. Applying an EV/EBITDA ratio of 12, this sees an EV of USD$57.6m at the end of the fifth year – a 405% increase on the current assumed EV of USD$14.2m (based on current market cap of USD$11.88m, cash of USD$2.83m, raised via IPO, and debt of USD$0.51m).
SWOT Analysis
Strengths
Technology partner status allows transcendence beyond single established network
Product pre-launched and market penetration established, with 100,000 subscribers across multiple channels
Simple product with intuitive UX
Established agent partner in current market
Weaknesses
Over-reliance on partners and strength of partnerships to drive transaction based revenue
Management team appears to have limited experience in mobile money sector
Opportunities
Approx. 21m of Philipines adult population unbanked and have access to mobile phones. Of these 21m, approx. 20m do not yet use mobile money services (92.3%)
Nearby Asian markets, such as Indonesia, primed for mobile money services (250m population, 75% > 15 years old, 60% of adult population unbanked, only 3% aware of mobile money services)
Push by global institutions such as the World Bank to provide adult population with access to financial services
Approx. 2b of global adult population still considered unbanked
80% of global adult population expected to own a smartphone by 2020
Threats
Established competitors in Philipines market with pre-existing technology and ability to leverage off proprietary network (SMART and GCASH)
Response by incumbent financial institutions, such as banks, to expected mobile money service growth
New entrants to mobile remittance/payment market with global intentions (e.g. AirPocket)
Regulatory frameworks in global markets may not be conducive to mobile money services
Fear of technology adoption by consumers
Significant unknowns
Is this technology platform compatible with non-smartphones? The percentage of smartphone users is expected to increase, but there will likely be a percentage of the population that does not adopt this technology (particularly relevant in developing economies).
What is the growth expectation that has been aligned with the revenue forecast of USD$50m by the fifth year of operations? What percentage of market share does this assume?
(20min delay)