MME is forecast to report nett earnings for 2020 at $4.73M and that is expected to grow $10.13M by mid 2022. Where revenue increases from $47M to $90M in the same period. This represents ~215% increase in net earnings. EPS will grow from 0.026 to 0.059 in that same two year period.
Using the discounted cash flow model an intrinsic value of $2.485. Using the current TTM EPS of 0.025 and terminal growth rate of 6% for 5 years and an active 107% growth rate for two years.
A two year price target of $2.48 is to be achieved. I believe MME growth will exceed 6% longterm with their constant innovation and product releases but to ascertain a real value figure, 6% terminal groeth for now was used. This is an 83% increase from the current price. Currently the stock is well under its intrinsic value and represents good value. However the current market is very uncertain and caution should be taken.
The obvious risk to any credit issuer is interest rates. However this is less of a risk currently as the RBA are adamant rates wont go any lower than what they currently are as this has no real effect on the economy. Therefore the only way for interest rates to trend now is UP. Further a company such as MME which issues revolving credit and personal loans are less sensitive to rate changes.
COVID is also another huge factor, as the first to feel the pay of economic downturn are banks and lenders. However MME issued a market updated in April ( https://www.asx.com.au/asxpdf/20200406/pdf/44gqnj9r3xkqk5.pdf ) and only 3% of the groups active customers asked for payment relief and MME benefiting greatly from Jobkeeper.
Currently MME offers two major loan types from their flagship brand MoneyMe but they also have a second brand MyOzMoney for the purpose of market penetration which offer the same products. Personal Loans and revolving credit are the two products which MME offer branded as "MoneyMe Personal Loan" and "MoneyMe Freestyle Virtual Credit" respectively; interest and fees are charged on both products for revenue generation.
MME entire platform runs on the Horizon Technology platform which is an in house proprietary platform. The front end part of the system is the android/IOS application which consumers see. However, Horizon's back end automates loan offers, manages customer applications, underwrites, manages referrals among other things. AIden is an MME artificial intelligence module, which is a machine learning platform that uses algorithms to efficiently interrogate data based on historical datasets. It finds patterns in customer behavior using data to assist in determining the likelihood of default. With AIden, we are able to apply a bespoke scorecard that enhances our credit risk assessment beyond the use of traditional credit bureau scorecards
MME currently has 80,000 customers and has a strong track record of returning customers, about 40% of all customers all in 2019 were returning customers. On average, customers of MME take out 2.6 loans with a 17 month average product life span. Loan weighted averages have been trending up essentially meaning loan size is steadily increasing both in loan duration and loan size. This is true for both the personal loan product and the Freestyle Virtual Credit Account (see below)
MoneyMe Limited operates in the digital consumer credit business in Australia. The company offers personal, cash, short term, instant, and small loans; and freestyle virtual credit account products, such as line of credit and credit cards. It distributes its products under the MoneyMe and MyOzMoney brands.
MME also operates Buy Now, Pay Later products for the real estate sector and has other products forthcoming.
The company was founded in 2013 and is based in Sydney, the floated in 2019 for $1.60 and last traded at $1.32
MME operates in the consumer credit market in Australia, the current addressable market is $471B per year. Large traditional lenders control the majority of market share being 95.6% (2018), this market share is controlled largely due to the high barriers to entry, economies of scale the large players have acquired and cheaper overnight funding. However, consumer preferences, the increasing role of new technologies, the emergence of the digital native generation as borrowers and increased scrutiny and regulation following the Banking Royal Commission, together with the emergence of non-bank lenders, is causing change in the sector.
With technology allowing for easier entry into the market and distrust of transitional lenders increasing. Small lenders (non-bank) are forecast to grow to 9.0% market share by 2024 where currently they only control 4.4%. A CAGR of 21%.
MME growth will occur from a variety of sources but will largely come from increasing market penetration through the evolving credit sector and deferral from non-bank lending and further by increase funding capacity by capturing more of an audience to loan to and larger loan products to customers.
Further MME also plans to spur growth via product innovation. One such product is their ListReady product in the real estate sector, providing a payment solution to the Vendor Paid Advertising costs (VPA) associated with selling a home. ListReady is a payment service that allows residential homeowners to defer the payment of their VPA until closer to settlement of the sale of their property
Further, MME has its subsidiary RentReady (www.rentready.com.au). The BNPL for the rental market. The products are for landlords which covers your property related expenses upfront so you can pay later and for property managers it offers a simple, online solution to cover property expenses now and pay later
In addition MME plans to expand to new geographies in the future and plans to enter markets such as the USA with an addressable market of $4T (trillion). MME has been testing the US market since June 2017 to evaluate the efficacy of our SEO and SEM strategies. To date, our US website has been used for the purpose of building familiarity with customer interactions and monetising the US traffic by referring it into a panel of domestic US lenders via an affiliate partner. Entry into the US market is expected in FY21.