03-Sep-2020:  Moelis Australia: WISR LTD (WZR): BUY: Secured vehicle finance launch adds another driver of growth

Diversified Financials / Consumer Finance, 3 September 2020, COMPANY UPDATE

• Stock Price: $0.200
• Target Price: $0.270 (prev: $0.260)
• Forecast Capital Return: 38.5%
• Forecast Dividend Yield: 0.0%
• Estimated Total Return - 12 Mth Forward: 38.5%

Company market data

• Market Cap: $227.9m
• Free Float (%): 70.0
• Enterprise Value: $191.9m
• 52 Week Range: $0.07 - $0.32 
• Shares Outstanding: 1,168.7m
• Avg. Daily Value: $1.2m

EVENT

WZR has announced the official launch of its secured vehicle loan product. Following a successful pilot, the secured vehicle will greatly accelerate WZR’s push into the $33bn vehicle finance market.

While currently 30% of Wisr’s loans relate to vehicles, the vast majority of these are unsecured. The secured loan product will offer substantially improved rates for consumers through the security. We anticipate secured interest rates of 7%-10% with losses of 0.5%-1.5%, compared to unsecured interest rates of 10%-14% with losses of 1.5%-2.5%. While the secured loans will initially be funded out of the existing warehouse facility, we expect there will be an opportunity to fund them through a specialised facility at a lower cost to take advantage of the better credit performance.

IMPACT

We marginally increase our revenue estimates for FY21/FY22 by 0.3%/1.6%.

INVESTMENT VIEW

We see secured vehicle finance as being a key driver of growth and potentially generating a similar level of originations to unsecured loans within 3 to 5 years. Importantly, WZR can tap into its existing distribution channels (brokers, ecosystem, SmartGroup, other partners, digital) to ramp up originations with significant incremental cost.

In addition to the secured loans, WZR has several other growth initiatives at its disposal including the resumption of digital marketing (which was paused during Q4) and a prudent relaxing of underwriting standards.

While we still see risk of elevated impairments once JobKeeper ends, the government appears to be winding it down gradually to avoid a hard landing. We are also encouraged by the performance of the loan book through COVID with WZR able to grow originations QoQ while also improving the quality of the book. Currently, only 0.6% of the warehouse loans are unable to resume repayments which is an impressive result given the economy.

We upgrade our rating to Buy and our target price increases marginally to $0.27 (prev: $0.26).

Our valuation methodology price uses a 50/50 weighted DCF and 12.5x FY22 Price/Net Interest Income After Losses.

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27-Aug-2020:  Moelis Australia:  WISR LTD:  HOLD:  Executing Well Through The Pandemic But Trading Close to Fair Value

Recommendation:  Hold, Target Price: $0.260.

July 2020:  Moelis Australia: Wisr (WZR): Growing the book and improving credit quality

Moelis Investment Rating: HOLD and 12M Target Price: A$0.28.

28-Feb-2020 (today):  Moelis Australia:  WISR Ltd (WZR):  BUY:  New initiatives tracking for a Q4 ramp up

EVENT 

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.

IMPACT

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. 

INVESTMENT VIEW 

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.

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FYI, WZR closed at $0.17 today, implying 64.7% upside to reach Moelis' TP of $0.28.

03-Feb-2020:  Moelis Australia:  WISR Ltd (WZR):  BUY:  Capital Raise to Strengthen Balance Sheet & Support Growth

EVENT

Q2 Business Update, Appendix 4C & Equity Raise.

• Wisr has announced a $33.5m equity raise at 18.5c per share, representing a 15.9% discount to the 5 day VWAP on 13-Jan. This represents approximately 181m shares, equal to 21.9% of the ordinary shares on issue.
• $31.6m originations in Q2 (pre-reported), including $22m in the new warehouse facility.
• 90+ day delinquencies remain low at 1.51%.
• Secured vehicle finance product now revenue generating and will be rolled out across Wisr’s distribution channels in late Q3 FY20.
• Wisr App and WisrCredit have reached 54,000 download and 70,000 users respectively, providing for attractive future user acquisition costs.

IMPACT

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.

INVESTMENT VIEW

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).