Prospa prospers on reduced risk

Online small business lender Prospa has moved down the curve to capture a higher proportion of lower-risk borrowers.

Gail Pemberton, chair of online business lender Prospa. Picture: Britta Campion

Online small business lender Prospa has moved down the curve to capture a higher proportion of lower-risk borrowers, as its full-year earnings match or beat the lion’s share of its prospectus milestones.

Prospa, which joined the ASX in June, is chaired by former BNP Paribas executive Gail Pemberton and led by joint chief executives Greg Moshal and Beau Bertoli.

What Prospa calls the “premium risk grade” share of its portfolio jumped to 39 per cent as at June 30, up from 26 per cent a year earlier. That came as the group’s funding cost rate declined to 7.5 per cent from 8.5 per cent a year earlier, which Prospa said it was passing on to customers.

“It just means we can tackle a much larger segment,” Mr Moshal said of the changing composition of Prospa’s loan book.

He added that Prospa was focused on looking after a “huge” portion of the business market that was underserviced by the big banks. Prospa charges interest rates that range from 9.9 per cent to 26.5 per cent, and the higher end has often spurred criticism of the company’s model.

Mr Bertoli said a slowdown in the domestic economy and a 19 per cent exposure to the retail sector didn’t concern the company, particularly as loan impairment expenses came in below Prospa’s prospectus forecast.

“We are very comfortable with our retail exposure,” he said, noting it reflected smaller business rather than the bigger end of the scale. “No matter what is happening in the economy the good businesses are able to hold their own.”

Prospa’s loan originations climbed 36.6 per cent to $501.7 million in the fiscal year, printing 3.1 per cent ahead of the prospectus forecast.

Total revenue grew 31.2 per cent to $136.4m, in line with prospectus estimates and earnings before interest, tax, depreciation and amortisation were $6.8m.

Prospa’s proforma net loss for the year ended June 30 was $1m, slightly better than the $1.5m forecast loss.

Investors applauded the result, with Prospa’s shares climbing 3.5 per cent yesterday to a record closing price of $4.50, well above the company’s IPO price of $3.78.

The company’s sales and marketing and general costs exceeded prospectus forecasts, as it ramped up its growth strategy including seeking inroads in New Zealand.

On a statutory basis the net loss was $24.7m, due to the inclusion of IPO transaction costs.

Prospa also said it was on track to hit its calendar year forecasts of $559m in loan originations and $156m in revenue.

On a call with management, analysts raised questions about why the second half of the calendar year would print relatively flat.

Mr Bertoli said the company’s momentum “was continuing” and the increase in loan originations allowed better use of data in its credit technology.

Prospa has also pushed into areas including a line of credit product and a business-to-business “buy now, pay later” product.

The company would not disclose which two of the big four banks were providing warehouse facilities to help fund its growth. Total warehouse facilities, including one secured in New Zealand, amount to $431.8m.

Prospa — which is backed by industry funds giant AustralianSuper, AirTree Ventures and Square Peg Capital — has originated more than $1.2 billion loans so far across Australia and New Zealand.