MME shares are rising; here’s why today’s half-year numbers are so important for its profit outlook
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With record growth in loan originations and a marquee wholesale funding deal, MME is primed for growth in the years ahead.
Fintech lender MoneyMe (ASX:MME) has laid the platform for strong growth in the consumer finance sector, and markets are starting to take notice.
The company released an impressive half-year update this morning, which showed new loan originations rose to $114m in the six months ended December 31, up 21 per cent on the prior period.
As a measure of its recent momentum, quarterly growth between Q3 (September) and Q4 (December) surged higher by 52 per cent.
And those gains have continued into the March quarter, where new loan originations are currently projected at $90m – a 30 per cent gain on the previous record.
With strong momentum in top-line growth, markets are taking notice as MME shares rose for the third straight day following this morning’s announcement.
In light of the results, MoneyMe CEO Clayton Howes caught up with Stockhead to discuss the company’s outlook for 2021.
As a testament to the strength of the business, MME’s new lending growth is underpinned by a market-leading wholesale funding deal with a Big Four Australian bank.
Earlier this week, MME and its partner bank expanded the funding facility by 50 per cent – to $150m (up from $100m).
As a fintech lender, the funding agreement is central to MME’s ability to deploy efficient loan technology at significantly higher margins.
Here’s Howes on why that’s an exciting development for the MME growth path:
“We made a step change in our cost of capital last September (with the $100m facility),” he explained.
“Now our partner bank has increased that facility, which means we get more cheap capital to drive growth.”
But importantly, he highlighted that the half-year results today only include three months of the funding facility in operation.
“The next half-year (to June) will be a full half year of reduced capital costs, which will be quite dramatic for profits flowing through,” he said.
“So we can already see that our June-half profit result will be super attractive because it will have the cumulative effect of those lower funding costs.”
As well as the material lift in margins, Howes said the material expansion of the facility (to $150m) is also a testament to the strength of MME’s model.
“We established the facility in December, and they’ve been so impressed with the calibre and integrity of our loan book that they’ve almost doubled down,” he said.
“They contributed another 50 per cent in less than six months. So it’s really a testament to what we’re doing because they tested the book rigorously.”
With strong growth in its loan book and a compelling medium-term revenue outlook, Howes said it’s not just ASX investors who are taking notice.
The company also retained a tier one investment bank in the December half to assess an unsolicited proposal for the acquisition of MME at a “substantial premium”.
Working with its advisors, Howes said the team concluded that “the growth and opportunity for MoneyMe that is happening is too great and valuable to shareholders future value,
“We went through that in detail to make sure we understand what’s best for shareholders,” he said.
“So we’re serious about building this business, and with our advisors we decided that the business has so many tailwinds that the premium at today’s price is probably not enough.”
Along with strong growth in its loan book, MME also reported record low net charge-offs of 4.7 per cent in the December half.
And the company is now ideally positioned to convert more loan originations into strong profits over the medium term.
Rare to see in the fintech sectors such as BNPL, MME’s model is already profitable.
And Howes said the focus is now on leveraging its market position to create “long-term customer value.”
“About 48 per cent of our customers are returning customers, which demonstrates that we’re becoming more valuable with our service offering,” Howes said.
In addition, MME’s revenue streams aren’t once-offs. New customers generate ongoing revenues for the business over a two-year time frame.
“The lifetime value on our customers is increasing because their weighted average life with MME is increasing,” Howes explained.
“Even if we did nothing, we’re already projected to grow revenue next year because of that longer-dated two-year revenue stream.”
“So if you combine that with our record growth this quarter and our wholesale funding base, it’s a very exciting period of growth ahead for us.”
This article was developed in collaboration with MoneyMe, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.