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.