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#my thoughts
Added 1 day ago

Current price - $0.44 (mcap: $100m) 

P/E 13.5 (TTM)

Earlypay is debtor/equipment finance provider in Oz. Up until covid, business had been growing nicely year on year with stable mgmt team. In Feb20 the business received two takeover bids, one of which was from COG (asx listed) for $0.60. The bids were pulled as covid took hold but COG remains material shareholder in EPY (owns 16%) and openly stated in its own 1H20 results that “we continue to monitor EPY’s performance in FY21 in light of covid disruptions”. Covid disruptions to EPY refer to all the government assistance helping companies who then do not need credit. 1H21 results showed the run rate in late 1H21 was good and guidance is: ‘record H2 expected’.

In Aug20 EPY also acquired a tech platform (Skippr) which is an automated customer acquisition channel. Basically online/fintech setup which removes manual applications etc. already in H121 EBITDA margins were up and this should continue to expand the more this is exploited.

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Added 7 days ago

A few thoughts after this mornings call:

- Tailwinds: Reduction to Job Keeper is likely to increase demand for working capital. 

- Reduction in funding costs to flow through in the next half. 

- Record monthly volumes in December 20 $171m 


- Might have a bigger moat than I first thought. When management were quizzed on competition e.g. Thorn group entering the space. Their response was it is a long game to do invoice finance at scale profitably. In fact they bought a invoice finance loan book from Thorn a few years ago. 

- Risk of bad debts in this model is less about the borrower, more about the debtor paying the invoice. (I had previously weighted more to the borrower)

- The integration with brokers and with a platform will help build a moat in distribution. 

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Added 2 weeks ago

I suspect the worry some may have about bad debt with EPY is overstated because trade credit insurance policy covers 90% of the debt over $5k so we don't have much risk of a wholesale slaughter via bad debts...besides the LVR is less than 60%.

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Added 2 weeks ago

Thorn Group (TGA) annouced today that they will enter the debtor finance space.

This will add another competitor to EPY.

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#Significant Volumes
Added 2 weeks ago

EPY significant step up yesterday +10.26% on significant volumes on no news.  EPY is in the invoice and equipment financing space.

See my previous straw re: thoughts on possible corporate activity in the future regarding COG or Scottish Pacific.  

Otherwise it could be a fund buying before the 1H21 result on the back of a good result from COG.

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#Takeover Prospect?
Added 3 weeks ago

9 Feb 21: EPY (formerly CML Group - CGR) was subject to COG and Scottish Pacific in 2020 which failed due to covid.  Scottish Pacific walked away from thier $0.60 bid.  COG ended up with a $17m stake in EPY and is the largest shareholder at 16.3%.

COG annouced NPATA growth of 140% on 27 January for 1H21.  It has unrestricted cash and term deposits of $53m.  With its shareprice at 12m highs I wonder whether they will have another tily at EPY.

Even if they don't COG's strong results bode well for EPY's 1H21 result as they operate in similar markets.

EPY is still trading well below the takeover bid of $0.60 at under $0.40.


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#Bull Case
Added 3 months ago

I’ve recently changed my mind on EPY. My deal breaker was the risk of bad debts / fraud which can be common in the invoice finance game. 2 concepts that influenced this change were:

1.     Is the multiple applied correct?

The digital transformation has enabled efficient targeting of smaller customers. They can now profitably service smaller businesses lending 20k (previously 200k). This increases the size of the market and therefore historical multiples are too low.

2.     Large margins provide a buffer against error.

I came across this concept in a podcast. Growing a tech company with skinny margins means you have no margin for error. Growing a tech company with large margins means you have more room for error. e.g. a software company with very low incremental cost for selling an additional software licence.

EBITDA margins for EPY were 42% in FY20. I think the margins are large enough to cover some bad debts.

If they can grow EPS by 20% in FY21. 3.96 CPS x 1.2 = 4.75 CPS. A conservative multiple of 15 would imply a PE valuation of 0.71. Lets make an allowance for bad debt and say 0.60. Q4 of FY20 was impacted by lockdowns as was Q1 FY21 for VIC.

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Added 3 months ago

24 Nov 2020: The change of name to EasyPay has immediate effect - up 10% today!

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#Business Model/Strategy
Added 4 months ago

The digital transformation in earlypay has some great qualities:

-       Reducing friction

-       Increasing the size of the TAM by increasing efficiency to target smaller borrowers

-       Improving the quality of decision making with bookkeeping data. (If I dream a bit further, this may even reduce bad debts)

-       Improving scalability


Earlypay will do what Waddle does but it has an existing client base. Waddle has to find new clients but has the draw of Xero.


Ongoing M&A potential with COG or Scotpac are an added bonus


The deal breaker for me is credit quality. This is a consistent issue for the invoice financing sector and a reason why the big banks tend to avoid this area.


As at 30 June 2020, CML group had $25m in invoice finance & equipment finance loans that were more than 90 days overdue or credit impaired. The $1.5m expected credit loss allowed for in the P&L seems low.

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#Name Change
Added 5 months ago

16 Oct 20: AGM resolution to change the name of the company to "EarlyPay Ltd".  It's got to be even better than "AfterPay" right?  I hope the name change as the same effect on its share price though I some would say that I'm dreaming.

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#Bull Case
Added 5 months ago

3 Oct 20:

  1. COG owns 17.4% stake.  In an investor call for Thorney investors recently the CEO of COG commented that they are opened to reopening discussions in the future. 
  2. If they refinance their expensive loans, costs will decrease by $1m p.a.
  3. The acquistions of Skipper Invoice Finances in July 2020 provides an online automated platform and enables CML the ability to service smaller clients profitably, typically with receivables book of less than $200k, a market sector previously cost prohibitive for traditional invoice finance providers. Brings forward CML’s planned technology enhancement roadmap and development by approx. 2 years.
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