Money3 Corporation (MNY) | Changing to lower gear
Update: Unsurprisingly, MNY recently removed its guidance for an FY20 NPAT of A$30m+, despite recording NPAT of A$23m for the first nine months of FY20. At the same time, MNY flagged an expectation of lower new lending volumes in both Australia and New Zealand due to disruptions related to COVID-19.
Business status: 1) MNY previously indicated that fiscal YTD loan application volumes to end February 2020 were up 30% pcp, although it anticipated volumes would decline during the COVID-19 period; and 2) MNY stated that its IT environment enables staff to work remotely and that cross-training of staff facilitates a shift in focus from loan originations to managing loan repayment obligations.
Our view: 1) At issue here is the extent to which new auto loan volumes reduce and bad debts rise as a result of social mobility restrictions and any material economic downturn; 2) we expect loan origination growth for MNY will be more severe in New Zealand than Australia due to greater social mobility restrictions; and 3) as a rough guide, carsales.com (ASX: CAR) updated the market yesterday, saying lead volumes had grown solidly to March 10 but have since declined by 25% – interestingly, it said website traffic has remained resilient, suggesting pent-up demand when restrictions are eased.
Financial position: At 1H20, MNY had total financing facilities of A$196m, with c.A$50m undrawn. MNY has since drawn an additional A$40m in funding to underwrite strong loan book growth in 3Q20, whilst at the same time stating it had A$46m in cash.
Changes to forecasts: We have lowered FY20/21 EPS forecasts by 14%/18% respectively by slowing loan book growth through 4Q20 and 1Q21 and also lifting bad debt expense assumptions.
Investment view: BUY maintained with a revised DCF valuation of A$2.83 (prev. A$3.41) and price target of A$2.85 (prev. A$3.41). We continue to regard MNY as a high-quality franchise which continues to benefit from the withdrawal of traditional lenders from the auto finance space. Whilst we would expect a number of MNY’s existing customers will undergo financial stress, we would expect an alignment between its customer base with the JobSeeker and JobKeeper stimulus packages. It must also be remembered that the majority of MNY’s customers do not have mortgages and loan exposures are secured by the underlying asset. Click here to read full report