All doesn’t see to be rosey in the fintech sector with shares in new-age business lender Prospa slumping under its issue price yesterday after a weak trading update raised doubts about its online small business lending model.
Prospa shares tumbled more than 29% to a new low of $2.77 after the company reported that earnings and revenue will be sharply under its prospectus forecast due to a number of factors including a chase for premium customers.
Prospa investors paid $3.78 a share ahead of its float in July.
Prospa said loan originations for this calendar year will be up 32% on the prior corresponding period and slightly ahead of prospectus forecast at $574.5 million.
However, earnings before interest, tax, depreciation and amortisation (EBITDA) will be around $4 million, compared to prospectus forecasts of $10.6 million, and revenue will down 8% below forecast at $143.8 million.
The company blamed the weak result on premium customers with longer loan terms and lower interest rates who have pushed out the revenue recognition of a significant portion of its loans. At the same time costs were also higher than forecast in the prospectus.
“Our business continues to grow and evolve,” said Prospa’s joint chief executive Greg Moshal who said the company continues to invest in new products as well as sales and marketing.
“While we are experiencing some short term impacts on our forecasts, we’re confident we have the right growth strategies to deliver long term shareholder value,” he said.
The company claimed the premium customers now being pursued were a benefit:
“While we continue to grow our lending to all credit grades, we are seeing increased appetite for our solutions from premium credit quality customers who pay lower interest rates over longer terms,” the company said yesterday.
At the contribution margin level, the revenue shortfall is expected to be largely offset by reductions in loan impairment expense and funding costs, such that the CY19 net interest margin after losses is forecast to reduce by $2.3 million on Prospectus levels.
We expect to see further reductions in net impairments as our premium loan book seasons.
Historically, we have observed a lag of 12-18 months between the origination of a loan and loss outcomes.
