MoneyTalks: Online lender Prospa and mine site provider MLG Oz get big price targets from brokers
PGL focuses on lending to Australian small businesses, with an extensive $855.8m customer loan portfolio diversified across industry and geography.
The company has a track record of strong growth over recent years, which is expected to continue given a large market opportunity and scalable business model.
PGL is an early mover in online business lending, with that advantage reinforced by its technology, funding and distribution.
Sequioa says the combination of these is driving scale benefits that leads to competitive advantage for PGL, adding that small business lending represents a substantial opportunity as it is a large sector of the economy under-served by banks.
Of the 2.3 million small businesses in Australia, only 1.7m make an annual turnover of >$50,000, representing businesses PGL considers to be of a sufficient size to be funded by business loans.
Most of PGL’s customers are well satisfied, evidenced by the company maintaining a high Net Promoter Score of >70 in the first half. Customer satisfaction is further demonstrated by PGL ranking number 1 on Trustpilot in the non-bank financial services category for small business loans in Aust/NZ.
Meanwhile, PGL’s financial performance is underpinned by attractive per-loan metrics, with an average net loan of >$3,900 and contribution margin of ~42.5%.
“This is supported by a short average customer payback period of <12 months and high levels of repeat loans which benefit from lower acquisition costs,” said the note from Sequioa.
According to the broker, PGL’s business model is also highly cash generative. In the first half, the company delivered operating cash flow of $47.0m (+98% on pcp).
There are other aspects of PGL’s business model that are likely to drive improvements to the company’s unit economics over time, says Sequioa.
These include repeat business, a scalable platform with multiple products and geographies, strong distribution partnerships, and access to capital from multiple funders.
“Based on current forecasts, we derive a DCF equity value for PGL of $0.53 per share, with potential upside from new products and acquisitions,” Sequioa concluded.
Price target is set at $1.21, versus current price of $0.51 at the time of writing.
MLG provides mining services at 29 sites throughout Western Australia and the Northern Territory. These services are provided via more than 150 trucks, 500 trailers and dollies, 100+ loaders and five crushing and screening plants.
Ultimately the company’s revenue and earnings are driven by the volume of resource production at the mine sites of its clients.
Euroz is optimistic about MLG’s prospects based on improving conditions on the ground.
“Inflationary pressures are increasingly able to be passed. MLG’s better access to required labour is likely improving fleet productivity, a key margin driver,” said the broker.
“Process and systems upgrades implemented over the last few years can also drive efficiency improvements across the business.”
MLG has just reported its full year FY23 results, delivering a much improved second half.
“In summary, the strong second half has re-set the business,” said Euroz.
“Our view is this is well understood by the MLG team, and we look to a feature of 2024 being increasing margin and return on assets, as resources (people and gear) are deployed or redeployed at higher utilisation, efficiency and rates.”
The views, information, or opinions expressed in the interview in this article are solely those of the brokers and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.