Credit Intelligence’s growing BNPL businesses in Australia and Hong Kong are expected to grow faster than what the current stock price is pricing in, says Pitt Street Research.

Pitt Street Research has released a report which said that the CI1 stock price should be valued much higher, considering the projected revenues within the buy now, pay later (BNPL) sector.

The  segment is growing rapidly, with  the  Australian BNPL revenue to grow at 10% CAGR over FY2020 – 2025 to reach $1.1 billion, according to a research report from Pitt Street.

On the B2B segment, BNPL platforms are set to witness a surge in demand as businesses, particularly SMEs, explore alternative routes during this period of economic uncertainty.

SMEs are currently facing the heat of economic uncertainty and their needs remain largely unaddressed, as banks are often reluctant to lend without real estate collateral.

A bank loan process can also be lengthy and burdensome, hindering the SME’s operations and expansion activities.

CI1 has filled this market gap through its recent acquisitions of Australia-based fintech firm YOZO, and Hong Kong-based firm OneStep,  providing the platforms to launch itself into this lucrative sector.


YOZO set to disrupt Australian market

CI1’s YOZO platform is a unique offering within the BNPL segment, and has the potential to disrupt the SME lending market in Australia.

The platform leverages  AI and machine learning to help small businesses manage payments and improve their cash flow.

The platform’s unique features include flexible repayments that allow small business clients to choose their own repayment dates to better align with cash flows.

Pitt Street says that typically, the challenge for SMEs is inconsistent cash flow leading to delayed loan repayment.

This not only leads to poor relationships with suppliers, but also negatively impacts their credit rating.

Notably, many small businesses look for quick credit in such situations in order to avoid disruption in operations and missed business opportunities.

YOZO’s AI-powered algorithm could approve loans in 30 minutes, and also has the capacity to adjust borrower limits without loan reapplications.

Since initial development in May 2019, YOZO has helped about 300 clients access credit solutions and has a total loan book of about $3 million.

Pitt Street Research believes that the acquisition and integration of YOZO is expected to offer a multitude of benefits to CI1.

First, CI1 has traditionally been a debt restructuring and personal insolvency consultant, but with the YOZO acquisition, it has expanded into adjacent areas of credit funding, factoring

and debt management.

Second, with the YOZO technology now under its umbrella, CI1 is expected to transform into a full-service fintech player, especially for Australian SMEs.

The report also went on to say that CI1 can build a database in YOZO and upsell the suite of products to new customers.

The YOZO acquisition also complements CI1’s previous acquisition of Sydney-based Chapter Two Holdings (CTH) that provides debt restructuring and personal insolvency management services.


OneStep acquisition to take market share in Hong Kong

CI1 recently acquired a 60% stake in OneStep Technology, a Hong Kong based company that provides corporate services to around 20,000 clients.

The platform currently provides BNPL services, along with small and medium enterprises (SMEs) loan services to over 20,000 clients in Hong Kong registered on its platform.

CI1 says that under its plans, OneFlexi will initially provide services to these Hong Kong SMEs, which will be further developed for the Australian market and other jurisdictions in the future.

The OneFlexi platform was built with a unique credit rating system based on the clients’ background information, spending payment patterns, and their historical records of bills and settlements.

The platform targets SME customers, with high credit SMEs being given privilege to extra borrowing limits and better repayment terms.

Currently, customers are able to choose from proposed repayment schedules, set to 3 months, 6 months or 12 months for settlement.

The platform is now targeting a mid-September launch on Hong Kong IOS and Android platforms with English, Traditional Chinese, and Simplified Chinese versions at the same time.

At the initial stage, the BNPL offering will  just be an extended payment gateway to allow SME clients to settle their on-demand corporate and utility bills through a deferred payment, one-stop BNPL service.

In the future, the platform will use  application programming interface (API)  to link with third-party platforms to assist their users to settle other transactions, such as payments and purchases.


Why Pitt Street thinks CI1 is undervalued

The CI1 stock price is currently trading at 1.5c,  but Pitt Street says it has updated its model based on FY21 results.

Pitt Street says it has  revised its model to incorporate the YOZO acquisition, and given that it is still early in its commercialisation journey, the organic growth assumption is estimated at 5% for FY22.

Following these revisions, Pitt Street says its modelling  has produced a revised valuation range of 5-7c per share.

For FY22, CI1’s target sales multiple is set at 3.6x base case,  which when adjusted for net cash and an expanded share base,  points to a fair value of 4c a share, more than 3x times the current market price of 1.5c.

This article was developed in collaboration with Credit Intelligence, 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.