March 4th 2019
By Yolanda Redrup (Australian Financial Review)
Bullish long-standing investors in ASX-listed US loans marketplace Credible Labs have been vindicated in their insistence that it had been one of the most undervalued stocks on the local boards, after its shares followed a 12.5 per cent rise on Friday with an even bigger 17 per cent pop on Monday.
Having listed on the ASX in December 2017 as the biggest ASX tech IPO of the year, raising $66 million at a $306.6 million valuation, it has struggled to trade near its issue price of $1.21 and its valuation had shrunk to $248 million, even after Friday’s rebound to 94¢.
However the bounce continued on Monday with it closing at $1.10 and a $272.5 million market cap, with founder and CEO Stephen Dash attributing the resurgence to an increase in liquidity.
Dash owns 43.4 per cent of the shares and 75 per cent had been held in escrow until Friday, when 25 per cent of this became available for trade.
“It’s a tightly held register and since the IPO it has traded in low volumes. The people that are in want to be in and are taking a long-term view,” Dash says. “But the stock bounces around on small volumes and we expect that to change when it becomes more tradeable.”
Local venture capital fund Carthona Capital owns 4.7 per cent of the stock and partner Dean Dorrell said the 81¢ it was trading at last week was ridiculously low. It closed last week up at 94¢.
“In the Australian context, we see valuations for businesses just starting out or doing small amounts of volumes at elevated valuations. But when Credible has $US1.1 billion going through it already, they’re starting to be really significant,” Dorrell says.
“We think it will trade at multiples of here … the business is really heading in the right direction. Stephen Dash is a long-term player and he’s building something really solid for the future.
“It’s not a sugar hit, it doesn’t come immediately, but many of the things they’re working on are coming through now.”
Mr Dorrell’s comments came after Credible’s 2018 full-year results, which were published last Thursday, hit analyst expectations.
It has expanded from being a student loans marketplace to also connecting US borrowers to financiers for both personal loans and mortgages.
It generated $US26.4 million in revenue, up 34 per cent for the year to December 31, while its closed loan volume hit an all-time high of $US1.1 billion, up 40 per cent. However its net loss for the year also increased to $US13 million, up from $11.2 million the prior year.
These figures narrowly exceeded analyst Bell Potter’s estimated revenue of $26.2 million, but missed its net loss forecast of $12.2 million. That said, it exceeded Moelis analyst Brendon Kelly’s estimate of a $16 million net loss.
The business had strong momentum in the second half of 2018 in its student and personal loans business as a result of re-focusing its customer acquisition efforts toward a partnership model, in which it connects with content creators, or relevant websites, and only pays them a fee based on successful loan conversions.
At the same time the business scaled back its spending on digital channels like Google and Facebook, which have become more costly and require upfront payments with no guarantee of returns.
Dash says the business has delivered on its strategic priorities for 2018 – building consumer awareness, establishing partnerships, investing in its technology platform and improving the customer experience, while expanding its marketplace into mortgages.
He says 2019 will be all about building up its mortgages product, which is now live in 35 states in the US and has six lenders connected to the platform.
“The US is a monster market and we’ve proven ourselves in non-mortgage lending and now we’re taking that and applying it to a $1.6 trillion market,” Mr Dash said.
“It’s a mortgage broker experience online, they can get pre-qualified in less than three minutes and then we hold their hand through the whole process. We want people to be able to self-serve their way through the whole experience, like they do in the student loan marketplace.”
Compared to local fintech success story Afterpay, which has a market capitalisation of 30.5 times revenue, Credible trades at just 5.6 times revenue. However, it is in line with US peer Lendingtree, which is listed on the NASDAQ and also trades at a revenue multiple of 5.7 times.
Other major investors in the stock include Regal Funds Management, Infinity Wealth, former Credible chief technology officer Brian Lucas and angel investor Simon Franks, who bought into the business in a seed round in 2014.
Bell Potter analyst Damien Williamson has a $1.45 price target and a buy rating on the stock and said in a note that it had an increasing prospect of reaching profitability with its current $US30 million in cash reserves.
But Williamson says there are still plenty of risks in the stock, including the possibility of a competitor deciding to replicate its business model or the company failing to attract enough loans through the platform.
“Economies of scale is required to earn a sufficient return on investment on Credible’s technology platform,” he said.
“New competitors may place downward pressure on origination fees. Increased competition is likely to result in increased marketing spend.”