Some thoughts on PEXA, as I at least have some experience with it and I’m not intelligent (or yet confident enough) to attempt a valuation that might withstand even meagre scrutiny.

My experience is from Queensland, potentially and probably differing from other states, and any terms like “monopoly” are in reference to such.

I have recently been admitted to the legal profession and have had a couple of years experience as a law clerk in different firms. Rather often, I will be pondering investment opportunities at my desk (he says, also pondering his own career choice) and have considered some of the companies that appear to be the dominant players in the legal space.

LEAP and Infotrack are both privately owned by some wealthy individual, I believe. For those who don’t know, LEAP is basically the home app for your law firm - storing all the matter info, client details, documents, correspondence - literally anything and everything. Infotrack, from my understanding, is just a data seller (if you can imagine an ASX type company that sells up-to-date info at a premium) - absolutely essential if you need to get an accurate title or business address, for example.

I would absolutely love to get a piece of them, considering LEAP is pretty much a monopoly here already, as far as I can tell, and you need to pay Infotrack all the time for property searches, company searches, etc. Ultimately, if you want to run an effective and competitive firm, then these are essential. But alas, they are off the public picnic table.

Hence, my thoughts lead me to PEXA. Pretty much every firm I have ever encountered uses PEXA for their property settlements. I have heard of other platforms, however, I have never seen them in operation.

“Conveyancing” is basically the legal term for facilitating the purchase and sale of a property. Conveyancing was once a completely in-person experience but has recently moved digital. Unless you’ve done a private paper sale, if you’ve bought or sold property recently, then your agent/lawyer has probably used PEXA.

My area is not conveyancing, but I have seen it in action over the years. As far as I can tell, PEXA pretty much acts as the middle-man platform between the buyer and seller, then clips the ticket for the transactions that it facilitates, meaning you’re probably paying their fee as the seller/purchaser - a bit like those pesky real estate agents @Strawman

Could be wrong here, but that means its success is tied more to the amount of property transactions, as opposed to whether the property market overall does “well”. 

This kind of business feels like the type that could become (for better or worse) extremely entrenched in “the system”. Everything is moving digital. I cannot for the life of me understand it, but the courts are only just now starting to think about rolling out electronic filing for District and Supreme Court matters. 

At this stage, if you want to file documents in anything above the Magistrate’s Court (small matters court), you must physically take the physical paper documents into the court to file. Or, if you live hours away from the Supreme Court, like me, you pay a Process Server to file it for you - a business model which ultimately looks destined to die with further digital inclusion. The court will not accept electronic filing as of yet, but it seems inevitable.

Anyway, back to PEXA, no one does paper settlements anymore in practice. You might do them out of necessity, but it’s just not very practical or efficient, ever, unless you wind up in a firm that is primarily hard-copy, which do still exist, believe it or not. I don’t know the numbers, but I imagine the majority of settlements now are done through PEXA in Australia. 

It seems like PEXA could become a very stable business. Again, don’t know why, but the “higher tier” jobs - doctors, lawyers, etc. seem to be the most resistant and sluggish in adopting new technologies/processes. If a firm has spent considerable resources training and implementing PEXA into their system, then they will probably keep it on so long as it works.

It’s one of the only, and most popular, electronic settlement platforms that is historically proven and government trusted - so why change?

You would change - if the competitor’s product was many magnitudes greater/cheaper - but they aren’t, and I doubt they will be any time soon (could very well be wrong).

However, it seems rather difficult to improve much further here, considering all PEXA has done is take the required physical property settlement and move it digital. If the intermediary is always required to facilitate a property transaction, then the next logical evolution is … maybe metaverse/neural-link residential property settlements…?

What a time to be alive.

This leads me to my main question/concern - the potential growth of the business. 

If this business is already (which I would humbly argue it is) the winner (at least in AUS and UK) then is there much growth left remaining? Does this business seem likely to have an international scale potential? One thing to keep in mind also, this kind of business will likely only have any sort of “interoperability” with markets that share, or are similar to, the Australian legal system. Probably why the UK market and AUS market have been so successful - because Australia’s legal system is basically derived from English law.

I don’t think it would be possible for PEXA to ever expand into countries that have a differing notion of property rights, as the systems simply would not mesh well. Ultimately, this could likely even rule out countries like the U.S. that, although share our general political sentiments, have an entirely different system of law. Perhaps this means PEXA’s total growth is limited to only Commonwealth countries (and probably far fewer than that)? Either way, there is a certain extent to its growth, given the differences in human political ideology.

A final note, I would have thought the increased adoption and almost monopoly of this business would’ve equated to an increase in share price. Not yet. Listing back in 2021, down roughly 20%. Is this because of the lofty valuation in beginning, lack of attention at present, future growth already priced in, something else…?

For a quick summary:

• For anyone to buy/sell property they have to adhere to legal considerations (regarding the actual transfer process) and PEXA basically handles this.

• PEXA seems to profit from property transactions - irrespective of whether the property market does poorly or well (the main point I am very uncertain about).

• From my own personal and professional experience, PEXA seems to be the dominant (and arguably essential) provider of electronic settlement services.

• Does this dominance come from any sustained competitive advantage or is it simply the sluggishness of government and the legal system. Further, if the sluggishness of the legal system is something we can count on - is this not good for PEXA?

• Can PEXA continue to grow into other jurisdictions and, if not-
• -does this make the company unappealing or simply less attractive for its future prospects?

• (rambling final) Is this just some strange combination of a less than mediocre business with network effects (by virtue of everyone using the service) and switching costs (by virtue of the industry that they are in) - making it like a bastardised double positive, wherein it actually becomes a negative, because both of these moats are simply a result of uninspired coopetition and regulatory advantage? In other words, what PEXA has is great, however, anyone could do it and the only reason they are winning is because they moved first and in correct manner (but may not necessarily have any sustainable edge).

I suppose I just wanted to see if anyone else has had any personal experience with PEXA as few seem to cover it despite its widespread usage in practice.

Ultimately, if I bought some shares in this thing and held it until I had grandkids, I would think it somewhat likely that the business survives in some form, considering the stickiness of the industry … but is there enough growth left or will it simply become a potential dividend payout depending on the amount of property transactions that happen year to year?

Would very much appreciate a discussion on PEXA as my understanding of it as a business/financial metrics is relatively limited.

Cheers.