Lots of credit growth for many
That story includes PLENTI GROUP LIMITED. For more information, SHARE ANALYSIS: PLT
Non-bank lender Plenti Group is making a name for itself and leading the way in the fintech sector approaching a $ 1 billion loan book
-Improved credit quality by moving to secured car loans and renewable energy for households
-Storage facilities significantly reduce financing costs
– Increased consumer interest has enabled improvements in creditworthiness and risk ratings
By Eva Brocklehurst
Lending is what Plenti Group ((PLT)) is all about, which has seen significant growth in lending in the automotive, renewable energy and personal finance sectors. The guidelines have been warmly welcomed and are being closely monitored by brokers as they include achieving a net income by June 2022 and a $ 1 billion loan book by March 2022.
If those ambitions are met, the Plenti Group will be the first financial technology lender to do so, claims Bell Potter, while Moelis notes a $ 1 billion loan book would represent about 1% of the consumer credit market. The company has also set itself the goal of reducing the cost / income ratio from 55% in FY21 to 35%.
Plenti Group has improved its credit quality by moving to secured auto loans and renewable energy for households and away from unsecured personal loans. The increased use of inventory finance has also lowered the cost of new credit.
The most important growth opportunities are the new commercial automotive business, the expansion of lending for renewable energies and the cross-selling of products and services to existing customers.
Storage facilities have been set up with domestic institutions, which significantly reduces financing costs. Moelis expects margins to rise as financing costs under the new warehouse structure (from $ 350 million to $ 450 million)
The broker, which is initiating coverage with a buy rating and a target of $ 1.93, intends to cut funding costs from 5.7% to 3.0% and cash margins from 1.5% to 1.3% to increase. Everything until FY24.
Bell Potter notes that the lack of senior large bank loans has led to increased demand for securitization issues in both residential mortgage-backed securities (RMBS) and asset-backed securities (ABS). The broker estimates that the acceleration in the loan book will in turn increase profitability and maintains a buy rating with a target of $ 1.85.
Wilsons agrees that the $ 1 billion loan book will be a catalyst, as will first month of profitability and a second securitization deal. Plenti Group’s recent ABS transaction set the standard for further transactions and requires only 0.5% equity funding, which will improve cash flow returns.
Additionally, the pricing of the deal appears to be superior, with preliminary ratings from Moody’s suggesting that pricing could be up to 100 basis points better than previously expected.
The broker, which maintains an overweight rating and target of $ 1.75, notes that the Plenti Group has attracted significant consumer interest over the past few years and has subsequently improved its average creditworthiness and risk score.
The company’s first quarter (which ended in March) was a record for both lending and gross borrowing, and Shaw and Partners believes the market is underestimating the current run rate. The broker is forecasting a multiple of the current share price over the medium term if the company can deliver on its growth ambitions, and maintains a buy rating and target of $ 1.90.
Shaw and Partners calculates that June borrowing run rate and current loan book size, combined with yield, repayment rate and cost estimates, had loan book size of 1.8 billion and more than $ 180 million in revenue and $ 40 million US dollar net profit.
Moelis also expects the stock to reassess if key milestones are reached, even despite the potential for disruption from the pandemic in the second quarter, highlighting that the main catalysts are new securitization deals and renegotiation of storage conditions. The main risks lie in competitive price pressure and macroeconomic factors such as financing costs or a rise in unemployment.
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