Online small business lender Prospa Group Ltd (ASX: PGL) listed on the ASX yesterday, rising 19% before close to establish a market cap of nearly $720 million. Here’s what you need to know.
About Prospa
Prospa was founded in 2011 by Beau Bertoli and Greg Moshal with the idea of making small business loans easy. Today, Prospa is Australia’s number one online lender to small businesses, offering loans between $5,000 and $300,000 that can be processed in as little as 24 hours.
Since the company started, it has funded more than $1 billion and has a 97% customer satisfaction rating.
The Standout Figures
Prospa had net revenues of $99.735 million in FY18, up from $53.739 million in 2017. Profit before income tax was $2.97 million including a one-off expense of $3.1 million from a delayed IPO last year. Without that one-time expense, profit before tax would have been around $6 million.
Compared to some of the other financial technology companies ASX investors have seen recently like Afterpay Touch Group Ltd (ASX: APT), it’s nice to see one that is already making a profit.
The 97% customer satisfaction rating is an important figure in my view because it shows that they have loyal users who would likely come back to Prospa again. Small business owners can often struggle with funding and may have to take out a loan to purchase any significant equipment or inventory. Prospa has set itself up to take advantage of this repeat business.
Prospa has also won numerous awards, including the Telstra Business Award for Best Medium Business NSW in 2017, and MFAA Excellence Awards for Fintech Lender of the Year in every state and territory in 2018.
Filling A Gap
Prospa appeals to me as a business that fills a gap in the market. Small businesses can often struggle to fund growth from their own cash flows but may also struggle to borrow from banks because of a lack of tangible assets or prohibitive costs.
Prospa’s interest rates start from 9.9% per annum, which may be above what a bank would charge but it offers convenience and speed that a bank can’t match. It looks like Prospa’s product fits neatly into a gap in the market.
Risks
Business confidence is low at the moment according to National Australia Bank Ltd (ASX: NAB)’s monthly business survey, while the Westpac Banking Corp (ASX: WBC) Consumer Sentiment Index shows consumer confidence is sitting around the long-term average.
With confidence low, small businesses may be struggling for growth and might not be looking for funding nor be in a position to take on debt. With Prospa now a listed company, they may also see increased competition from the big four banks.
Summary
I like the look of Prospa. I think they have a competitive advantage and it’s nice to see that they’re making a profit, although I’d be wary of increasing competition challenging their margins. This is one company I’ll be adding to the watch list.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
