Questions

I was having a quick look at COG yesterday and I have a few questions - I thought I would throw out there for anyone that has researched it / knows the business or industry.

Firstly, regarding the broking and aggregation business. 4-5x EBITDA looks attractive and I like that management have walked away from the deals that didn't work for them recently however one of the things I can't get my head around is how sticky this industry is. How durable are the assets? What is stopping the asset finance brokers from moving to another aggregator once they are sold? I know in the mortgage broking industry many aggregators don't allow brokers to move the books (so mortgage broking aggregators have a large moat as any moving brokers couldn't take their book and if they did move aggregators themselves they need to re-write all the loans client by client).

However asset finance is by definition a much shorter duration loan and all the revenue is upfront. So, if there is no loss of trail commission for a moving broker (as there is in mortgages) what is special about COG's aggregators that keeps them? Adding to this "asset finance brokers" also strike me as more specialised than mortgage brokers and therefore more likely to move if the aggregator flexes competitive muscle (higher fees / margins). Their relationships are deeper with intermediaries giving them more competitive power.

Secondly, regarding the proprietary asset finance business I see their impressive growth and expectation that this will continue and that is great. Penetration of the overall NAF is very low so there is obviously a lot of room to grow but I struggle to get my head around how niche is this product and why are brokers supporting it? It says in the investor presentations that the product is a "niche product" and only suitable for clients "wanting a quick turnaround" and I assume this is code for "very high margin" and potentially low doc type product. Why brokers are supporting the product at the moment is probably also quite relevant as well i.e. what is driving the growth in that product probably talks to how sustainable the growth we have seen is.

If I can get my head around the above the rest of the investment case looks good. The valuation is mouthwatering if you adjust for deployment of the cash on the balance sheet and the delayed recognition on the leasing revenue and I think management are experienced enough with enough skin in the game to lower execution risk.