Friday, 3 March 2023

ASX February winners: Fintechs looked out of sorts last year, but H1 earnings reveal new hope for 2023

by Berkeley Lovelace

  • After a sluggish 2022, the fintech sector has made a modest recover this year
  • Fintechs on the ASX consist mainly of non-bank lenders and BNPL stocks
  • We look at which stocks made positive gains in February


Fintech companies grew exponentially during the pandemic, driven by e-commerce spending and a shift from physical towards digital payments.

But after hitting pandemic peaks, the tech sector has been on the back foot for most of 2022.

In 2023, the sector is gradually bouncing back and despite the fragile state of the economy, finTech companies on the ASX are not doing too badly.

While many are still a long way off from profitability, a handful of companies have already launched themselves on the pathway to profits especially within the non-bank lending cohort.

The Australian non-bank lending sector has boomed particularly after the conclusion of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The aftermath of that inquiry saw Aussie borrowers ditching their banks and turning to alternative lenders, most of which offer digital-only services.

These fintech lenders are nimble, unburdened by brick-and-mortars and the regulatory capital requirements of traditional banks. As a result, they’ve been able to successfully target the fringe segments left untouched by the big banks, like the automotive loans market.

The BNPL sector meanwhile has rebounded slightly this year, but many stocks are still languishing below IPO level.

The BNPL sector is facing several headwinds all at once.

First, interest rates have gone up rapidly, and it’s the first time the sector has ever had to deal with a rising interest rate cycle, which is putting a lot of strain on the business model.

High interest rates not only increase funding costs, but also reduce people’s ability to make purchases and cause higher rates of defaulting customers.

Secondly, the Albanese government has released a discussion paper that’s expected to tighten the regulatory screws on the sector.

Last week, the Treasury Department received several submissions from market players and the ASIC as part of that discussion paper and subsequent public consultation.

The government is expected to make its regulatory decision later this year, with the possibility that BNPL companies will end up being put under the National Consumer Credit Protection Act.


ASX Fintech winners for February

Change Financial (ASX:CCA)

Change offers Banking as a Service (BaaS) tech solutions to financial institutions,  providing infrastructure and tools for building payment solutions.

The CCA shares have been rallying on the back of some impressive first half figures.

CCA reported first half revenue of US$4.3m, up 14% on the pcp.

While bottom line EBITDA was a loss of -US$1.1m, it was still a 37% improvement on the pcp.

The company has made significant moves by signing an exclusive six-year direct issuing partnership deal with Mastercard in Australia and New Zealand, enabling Change to issue prepaid and debit cards under the Mastercard logo.

Looking ahead to the second half, the company said its areas of focus include achieving ‘go-live’ of its first New Zealand client, launching the latest version of Vertexon PaaS platform in the US, and expanding the PaySim API capabilities.

CEO Alastair Wilkie has advised his intention to retire as CEO by the end of June, but will remain as a director of the company to assist in the executive transition.

Wrkr (ASX:WRK)

Wrkr is a RegTech company assisting workers, employers, members, and their superannuation funds in meeting their regulatory compliance across the hire to retire lifecycle.

During the month, shares in WRK rose as first half revenue grew 53% to $2.69m.

Although bottom line loss was -$2.5m, it was 16% lower than the pcp.

The first half saw the business releasing new features in its Wrkr SMSF Hub, Wrkr READY and Wrkr PLATFORM products.

Having fundamentally transformed the business in FY22, Wrkr says its goal is long term growth and financial stability.

The company released a forward looking strategy which includes the goal of growing its base of Australian workers.

Propell Holdings (ASX:PHL)

Non-bank lender Propell is targeting Australia’s 2.4 million SMEs who the company says are frustrated with traditional banks’ slow and difficult lending processes and paperwork.

The platform is serving a potentially large addressable market as Australia’s small businesses account for 97% of the country’s enterprises.

Over the past month, PHL shares as the company reported a 386% increase in first half revenue to $1.6m. This includes a one-off revenue of $557k from revaluation of its Convertible Notes.

Although bottom line loss for the half was $1.7m, it was still 22% lower than the pcp.

Propell says its revenue growth and cost-cutting measures during the half demonstrate its ability to achieve growth without requiring additional resources.

The company has a stated goal of reaching 100,000 clients within five years.

Butn (ASX:BTN)

Momentum in the Butn BNPL platform continues to accelerate, with platform origination growth an increasing component of its overall loan book.

BTN shares rose as the company delivered $214m in loan originations for the half, up 68% on pcp, including two consecutive record quarters of growth.

Net revenue for the half was $3m, up 119% on pcp.

Butn says growth was balanced by appropriately balancing risk as the company maintained its low historical bad debts write offs under 0.1% of total originations.

Revenue margin has increased to 2.6% (up from 2.0% in the pcp), and bottom line EBITDA was $0.6m, compared with (2.9M) loss in pcp.

Quickfee (ASX:QFE)

The payment solutions and lender rose during the month as revenue increased 47% during the half to $6.9 million.

The growth was driven by increased transaction volumes and revenue yields across all products.

The company’s US Pay Now Total Transaction Values (TTV) was up 30% to US$548 million, reflecting increasing growth in new customers and merchant sign-ups.

In Australia, there is growing demand for its lending services, up 19% in H1 FY23 to $20.6 million.

Although NPAT was a loss of $4.4m, it was still 40% better than the pcp.

QuickFee says it remains on track to achieve run-rate profitability by June 2023 within existing cash and borrowing facilities.

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