Strong Growth & Company Update
At higher price levels after the recent 35% leap it's hard to see a huge amount of short term upside for Wisr. That being said the leap was caused by 48% month-on-month growth in loan originations during what should've been a difficult May.
Wisr has tightened their credit policy to improve the credit profile of applicants. This matches a relatively recent institutional presentation about Wisr that highlighted it's strong book and lower credit risk as a strong case for investment. The Wisr book has clients with a higher than average credit score compared to their competitors.
The company also so the largest single week settlements of $4m and only has 6% of the client base in COVID loan deferrals.
The aim for this stock is to either; trade the volatility or buy at value and hold for the long term. Could become a big growth story or an acquisition target.
31/01/20 Q2 FY20
-$31.6M new loan originations for the QTR (36% QoQ)
-$54.9M loans for H1FY20 (35% HoH)
-Suprassed $163.8M total orginations.
-New funding when live halfway through the QTR (22.5M of total 50M already used)
-$33.5M institional CR in Jan with a $1.5M SPP.
Its tricky to determine how much cash is being used each quarter as loans generated in the previous quarter sometimes get onsold after the month ends as we have seen in previous quarters. This should become clearer as they take on more loans through the NAB funding facility.
Going of reduction of Cash in the Bank they used $1.7M this quarter compared to $2M the previous. Happy to see this and it should improve as margins increase from new funding.
Increase in loans is a great result, probably slighty above what i was expecting.
Credit Raise came earlier then I was expecting. Probably an ideal time with recent run up in share price and coverage from stock picking services and newsletters.
Half of the inital 50M funding facility form NAB has already been used, the other half will easily be used in Q3. Best case scenerio is they get the extension of $200M or use part of the credit raise to fund the lending themselves.
Alternative and more likey is they use Funding facitly, onsell the loans and take managment fees and partially fund loans from cash generated from the credit raise. Management have previously indicated this would be the case when they first announced the NAB deal.
Company commentary here:
The red flags that have convinced me to Sell Wisr.
Directors performance rights:
All of the performance rights for the directors are linked to share price targets. This is too easily manipluated for such an early stage company with positive announcments, broker recommendations and fund mananger recommendations.
When the directors' 5M rights @ 18c lapsed in Novemeber the board decided at the AGM to set the base for the next set of rights at 14c. By the time this was announced the conditions had already been met and they recevied around 5M rights straight anyway. All the current targets are still linked to share price targets, no targets for actual business performance.
At its height the SP was around 34c, during the pull back in March it went as low as 7c, it since bounced back to around 15c. Not 1 director has made an on-market purchase.
Loan Growth is slowing
Q2FY20 had QoQ growth of 36%, Q3FY20 had QoQ growth of 23% and the company has indicated this will be much lower in Q4 as they raise stress test criteria for new loans in response to the econmic pull back caused by Covid19. They have about $35 cash on hand after the recent capital raising but that may be burnt through pretty quickly for a company that isnt yet cashflow positive.
One of the highlights of the annoucment of the Loan Funding facility with NAB in Novemeber 2019 was the tripling of the margins they receive on the loans. They have used the initial 50M warehouse and instread of continuing with thext 150M they are now returnng to the off balance sheet funding model for which they receive only a loan maintence fee. This may have been NAB reducing their exposure to unsecured consumer lending or Wisr spreading the risk to additional funding channels either way this will a significant impact on predicted revenues going forward.
Wisr's loan book is the primary source for its revenues and for it to slow down so quickly it the biggest red flag.
Loan arrears are growing inline with its Loan book
90 days+ loan arrears are still about 1.66% this has stayed pretty constant. This indicates that bad debts are growing as fast as the loan book. As the economy goes into recession and unemployment rises this number is more likely to grow then reduce. Not a good combination with falling revenues.
Wisr may survive this recession and turn it around to be come profitable but for me there are better opportunites to invest at the moment. Will keep watching it.
Wisr Announces they have surpassed $200M total loan origiantions
The 4th 50M tranche too approx 4 months compared to 6 months for the perious.
Loan originations were $38.9M for Q3FY20 a 23% increase on Q2.
They have used 50M of the loan funding warehouse from NAB and are returning to the hybrid model of off balance sheet funding which they take a small managment fee of.
Loan orginations are expected to slow in Q4 as their risk appetite reduces.
Full announcment here:
Wisr provided a business update today
Company shareprice has taken a signficiant fall from ATH of 34c to 6.6 at time of announcment. Mainly due to the previous valuation being stretched, current ecconimic downturn and concerns about the business abiltiy to ride out a recession.
This announcement should aleviate that somewhat. The capital raise came at the perfect time be it by design or by luck. I suspect a lot of Wisr's competitors wont be so well funded and will really struggle over the next few months. This will provide an optunity for WIsr to increase market share.
I suspect loan growth with significatly pull back over the next few months as Australia deals with the Coronavirus and most lilkey goes into a recession.
No mention of the secured vehicle loans due to commence in Q3, I suspect because no one in Australia is buying cars at the moment.
Its reassuring to see the loans in arrears are still quite low, I suspect these will increase signifcantly over the next few months, something to keep an eye on.
Hard to see them reaching the predicted $240-$260M loan originations by FY20, but there is no point providing guidence at the moment.
28-Feb-2020 (today): Moelis Australia: WISR Ltd (WZR): BUY: New initiatives tracking for a Q4 ramp up
WZR reported 1H20 revenue of $2.2m (+82.5% yoy, -8.7% vs MOEe $2.4m). PBT of -$12.9m was below MOEe of -$5.4m. The key reasons for the differential were upfront recognition of share based payment expense for 3 year incentive plan ($4.6m impact), new accounting treatment for expected credit losses ($0.9m impact) and higher employee expenses ($0.5m impact).
WZR also noted the auto secured loans are undergoing an expanded pilot in 3Q20 following a smaller pilot in 2Q20. Management indicated both pilots have performed successfully and the loans will be rolled out across Wisr’s distribution channels in Q4.
The Wisr ecosystem is also expanding nicely with 125k consumers using Wisr App or WisrCredit up 104% from 61.5k at Jun-19, with a large portion likely having high purchase intent.
We adjust our FY20/FY21 revenue estimates down 8.8%/13.3% to $7.5m/$26.8m. Our FY20/FY21 PBT estimates decrease to -$20.7m/-$12.4m from -$11.0m/-$6.1m as we also factor in higher costs.
1H20 represented a transformation period for Wisr with the commencement of the warehouse facility and soft launch of the auto secured loan.
Given WZR had already updated on originations and the new warehouse facility only had a 6 week contribution in the half, our focus was on the outlook for the new growth initiatives (auto loans, partnerships, Wisr App, Wisr Credit) which have the opportunity to further accelerate the growth profile. These initiatives all appear to be tracking well to generate incremental growth from 4Q20. Notwithstanding, Wisr is already generating strong growth through unsecured loans in its broker, direct and paid digital channels as well as the transition to the warehouse funding model.
We maintain our Buy rating and our target price falls to $0.28 (prev: $0.31) based on a DCF methodology.
--- click on link above for more ---
FYI, WZR closed at $0.17 today, implying 64.7% upside to reach Moelis' TP of $0.28.
Q2 Business Update, Appendix 4C & Equity Raise.
We update our estimates to reflect the equity raise and loan book mix. We also lower our WACC from 12.7% to 11.8% to reflect that the underlying risk profile of Wisr is materially reduced with a strengthened balance sheet.
We estimate Wisr will have roughly $40m cash following the capital raise in Q3. Assuming $10m is set aside for the loan book and $10m minimum cash balance, this gives the company approximately $20m cash to deploy for growth initiatives such as sales & marketing and product development.
We believe the strengthened balance materially reduces the underlying risk profile of Wisr and also affords management better flexibility in how to balance growth versus profitability. With the warehouse facility enabling a much higher LTV/CAC, we see value in management potentially sacrificing some short term profitability to accelerate growth, build brand and create a larger competitive moat.
Over the near term, we see several growth initiatives continuing to play out including: (a) the transition to the new warehouse facility with ~3x better unit economics; (b) ongoing growth in core distribution channels through winning share from traditional lenders; (c) new distribution channels such as Smartgroup, Wisr App and Wisr Credit; and (d) ramp up of the auto secured loans.
Maintain BUY, target price increases to $0.31 (prev: $0.28).
$1.5m was allocated to retail investors for their SPP. However WISR increased it to 3m due to oversubscription of over $30m
From a macro prespective, its a perfect environment for WISR to grow:
Everything is being 'uber-ed'. The community is not happy with the Big 4. Small-caps are encroaching on their various products. Government is apathetic to regulation. People are open to change / trying new products / company (afterpay, uber). Neo-finance is in growth phase. The lending market is huge - The smallest of market share is still big.
But there is a loooong way to go for wisr to capitalise on all this.
Neo Lender specialising in unsecured consumer and secured vehicle financing.
Hybrid financing model via wholesale lending and a financing warehouse via NAB Australia. Moving away from peer to peer.
Low customer aquistion costs via traditional broker channels, Wisr's ecosystem of 3rd party partners, Wisrcredit, Wisr@work and WisrApp and traditional and online media marketing.
Huge user growth and loan orgination growth as per latest market update.
Reducing costs / scaling efficenies.
Loan defaults are below targets of 2%. .
31/07/19 Q4 FY19
Highlights from Managment Commentary
All in all a pretty positive result. Interested to see some figures around the products outside of the loan book and partnerships in the coming updates.