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#Company Overview
Added 2 months ago

About QuickFee Limited

QFE is a provider of payment, lending, and e-invoicing solutions.

QFE is effectively Afterpay serving small to medium sized businesses. Instead of you or I purchasing clothing from a retailer and paying via Afterpay, a small business (you or I in the APT analogy) needing accounting or legal advice can purchase services from an accounting or law firm (the retailer in the APT analogy) and pay later – BNPL. The main difference is while APT is business to customer (B2C), QFE is business to business (B2B).

Similar to APT solving a problem for the retailer, QFE solves a problem for the firm – they’re accounts receivable are effectively eliminated as they’re paid in 3 days* and they don’t have to chase up clients regarding payment which is not only time consuming but can damage client relationships. Accounts receivable take 88 and 60 days to collect for law firms and accounting firms, respectively. Clients have the option of taking out a 3-12 month loan at 9.9% with the loan being backed by the firm. QFE’s loan default rates are 0.02% and are guaranteed by the firm, considerably de-risking the business.

For the professional services firms, having their clients access Quickfee provides a convenient funding solution that alleviates working capital cash pressure, reducing the average accounts receivable for a firm from 66 days outstanding by 29 days. For the clients, it helps with cashflow, and allows them to access professional services that they may not have otherwise been able to afford, (all loans are guaranteed by the professional firm). Therefore, there are incentives for firms to adopt the platform, and once adopted, incentives for their clients to utilize it. In the event that clients do not take out a loan, they can still pay their invoice through the QFE payment platform, avoiding a credit card fee. In the US this has significant benefits.

QFE was founded in March 2009, originally servicing the accounting sector. It has proven profitable in Australia and has expanded out to serve both accounting and legal firms. In July 2019 Quickfee Australia and Quickfee US merged to become Quickfee Ltd and completed an (oversubscribed) IPO on the ASX.

QFE is lead by CEO and founder Bruce Coombes who has a 12.31% stake in the company. 30 years’ experience to span areas as diverse as Asian and Australian tax, outsourcing to Malaysia, CA program exam writing, public practice, board appointments and for the last nine years leading the team at QuickFee.

Online payments and even electronic invoicing by accounting firms in the US is years behind Australia – big untapped market $450B US vs $25B Aus

Quickfee achieves exposure through integrating with solutions used by professional firms to run their businesses – this is a key part of QuickFee’s strategy.

As at Dec. 19 352 firms have signed up with 50% of clients having taken at least 1 loan and 40% 2 or more.

US business – revenue is split 50/50 between loans and transaction processing.

Au business – established, profitable business, operating since 2009.

Forecast profitable FY 21/22 while under-promising and over-delivering on every other milestone to date.

Looking to have their US debt facility reduced from current 10% to a rate more in line with Aus rate of 6%.

You may wonder why, if QFE Aus has operated since 2009 they are still experiencing significant growth in the Aus market? This is likely due to the company branching out from only accounting firms to accounting and legal firms.

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#Thesis
Added 2 months ago

Thesis:

•Experienced, talented management team with CEO having run this business successfully in Aus for past 9 years

•Passionate founder with a 12.3% stake in the company

•The business has multiple revenue streams – interest on loans to businesses (9.9%), application fee revenue charged to customer, merchant fee revenue (this EFTPOS terminal), merchant fee revenue (charged to merchant as recurring revenue), + other revenue

•Operates in Australia and recently expanded to America, servicing accounting and legal firms with possibility to expand to other business sectors (e.g. architecture firms)

•Possess economies of scale

•Operate in a more stable market than traditional B2C companies such as APT as they sell B2B. As an example, businesses still require advice from accounts during the Coronavirus shutdowns and in some cases more financial advice.

•Currently unprofitable as they’re pursuing high growth in the underserved American market

•Strong tailwinds – 18 billion cheques are written in the U.S. every year, with this number decreasing by 1.8B/year as the American market moves towards paperless invoices and payment systems such as those offered by QFE. QFE report transactions have doubled in the past 6 weeks due to lockdowns.

•Strong balance sheet with $5.8M in cash and excess funds from IPO used to lower borrowings

•Quickfee claims to be a first mover in the US with little to no competition for its services

•If we compare to APT, credit risk is borne by firm not QFE; however, it is more capital heavy than APT requiring a larger loan book

•Have recently increased spending on a sales team suggesting rapid growth. In addition, with transactions doubling (as mentioned above) QFE could be hitting an inflection point.

 

Risks 

•affected by interest rate on their debt facility

•highly leveraged; however, this is to be expected


Disclaimer: I hold a position in QFE.

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#Finance + software x scale = $
Last edited 5 months ago

I have seen a fair bit of commentary describing Quickfee as the ‘Afterpay for business’. They are certainly both financial technology companies (fintechs) and their value proposition is that they will bring forward purchases (or in Quickfee’s case a more fitting description might be bringing forward payment). Beyond this though I think you need to be careful making too many comparisons.

Quickfee does not lend to individuals, it lends to businesses that are looking to pay for professional services including accounting services and legal services (legal being a relatively new vertical). While Quickfee is a snappy enough name, it is unlikely that it will become a verb as has been the Afterpay experience (I just don’t see millions of people getting excited about loans to businesses to pay for accounting services).

As most would be aware, Afterpay pays the merchant upfront and accepts the risk of non-payment for a fee (around ~4% of sale). Afterpay leverages live analytics on customer payment habits resulting in significantly less bad debt than traditional lenders. Quickfee also has very low bad debt, but in contrast to Afterpay Quickee requires the professional services firm guarantee the loan. This does not mean there is no risk, the risk resides in the professional services firm remaining solvent, but there is certainly less risk.

Quickfee really popped at the IPO, finishing about 150% up on the IPO price. It has since trended down as the excitement has ebbed away. Currently at about ~$0.35 per share the company has a market valuation of around $50 million.

For those interested in a growth/momentum story this is worth a serious look:

  • Lending in Australia is growing at >20% per annum
  • Lending in the US is growing at >100% per annum 
  • They currently have ~850 firms using the service (across Australia and the US) so the runway is enormous
  • They are investing in sales staff to capture the US opportunity (land grab style approach)

If there is a reservation I will put forward it is that I am not sure they have proven the story yet; does the service actually deliver enough value to change the way professional services firms and their customers transact….but on the other hand if the story was proven the company would be worth a lot more than $50 million, and therein lies the risk/reward trade-off.

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#ASX Announcements
Last edited a month ago

Extension of Lending Facilities in US and Australia

US facility

QuickFee US’s current lender, Global Credit Investments, has executed agreements to double the existing US$5 million debt facility, and increase the borrowing base ratio from 80% to 85%. This increase in the facility was necessary given the narrowing of existing headroom on the back of strong US loan growth in recent months.

The increase in the debt facility to US$10 million, coupled with the recent placement capital raising, allows QuickFee significant additional headroom to capitalise on the increasing demand for its payment plans in the US market.

Aus facility

QuickFee is also pleased to announce that its current debt provider for the Australian market, Lease Collateral Pty Ltd (“LC”), has increased the facility limit of debt funding of Australian receivables by A$5 million, on substantially the same terms as the existing facility (full details which were set out in the Prospectus dated 14 June 2019).

This represents the continuation of a long-standing relationship with LC and enables QuickFee to fund anticipated further growth in its loan book in the Australian market. The total facility limit is now A$25 million. QuickFee expects to provide its next quarterly update on its trading performance in early July.

https://research.nabtrade.com.au/uploadhandler/z1e88e00azdf2259e633b243dca970a176ef10ee88.pdf

Disclaimer: I hold QFE

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