KPMG says many fintechs have had to rethink their growth plans amidst falling investor sentiment and higher costs
Indian-focused fintech Findi has defied the odds of many in the sector to rise ~300% over the past year and 90% YTD
Wisr achieved EBITDA profitability for a financial half year for the first time in H1 FY24 after a change of focus
The Australian and global fintech sector experienced rapid growth at the end of the last decade leading into start of the 2020s, pushed along by record low interest rates and investor appetite for high-growth sectors.
But challenging economic conditions including steep interest rates rises to combat soaring inflation has hit the sector in recent years.
At the end of 2023 KPMG released both its Australian Fintech Landscape 2023 and Australian Fintech Survey 2023 reports, while more recently Pulse of Fintech H2’23 , a global investment trends overview of the sector.
KPMG partner, M&A and head of Fintech Daniel Teper told Stockhead most of the trends show a consolidation in the marketplace in Australia.
In November 2023, KPMG reported there were 830 active Australian-headquartered independent fintech companies, a 3% fall from 2022 figures.
Teper says the slight reduction comes as no surprise given the economic headwinds and the material shift in investor sentiment in 2023.
He says larger players have been seeking to streamline operations and achieve scale through M&A, while smaller players faced challenges in achieving significant scale and managing capital pressures in a tougher economic environment.
In the latest acquisition a consortium led by the Salter Brothers Tech Fund (Salkbridge) is set to purchase Prospa (ASX:PGL) in a transaction valuing the non-bank lender at $73.8 million.
The acquisition was announced on Tuesday in conjunction with PGL’s H1 FY24 results, which saw a 7.4% increase in total revenue on pcp to $145.4 million.
In January PGL also announced it had inked a deal to acquire the $18.4 million business loan book of Zip Co (ASX:ZIP) ) for $15.6 million.
Teper says he expects M&A activity to continue in the market, especially for listed fintechs.
“Given the softer market valuations surrounding the sector at present, founders and boards are asking themselves whether there is any advantage being publicly traded given the ongoing cost, resource and disclosure requirements” he says.
Rethink of growth plans
Teper says while most of the ASX fintechs listed between 2018 and 2021 during a highpoint for the sector, many have had to rethink their growth plans amidst falling investor sentiment and higher costs.
According to the ASX, 2020 was one of ASX’s strongest years for fintech IPOs.
“Our view is that the market for fintechs remains challenging, and we’ve seen that in share prices where almost all the fintechs are trading materially below their IPO price and in some cases at a discount to net assets,” Teper says.
“It is a case of managing their ambitions and cashflow to move through this stage in the cycle, following which they should benefit from improved investor sentiment and confidence in the market, as well as potential benefits in terms of both availability and cost of capital.”
Teper says addition, there will be businesses that will need to continue to evolve and pivot their business plan and strategy.
“Previously growth almost at any cost was the focus, and now it needs to be how do we create sustainable growth and make sure we are driving shareholder returns on more traditional metrics,” he says.
More positive outlook for fintechs
Teper says with higher interest rate cycle appearing to be coming to an end, that should move to a more positive environment for fintechs to operate with lower funding costs, less credit risk and greater support.
“The agenda for a lot of these businesses has changed in the last 12-18 months away from international expansion, talent growth and hiring and aggressive product innovation to establishing their core product and profitability,” he says.
“As we see investor confidence return and more support for the sector, we think some of the focus will revert back to top line growth and expansion, whether that be geographically or via new products launched to market.”
Here’s part one of our special on fintechs which have caught the eye of investors lately.
Findi (ASX:FND)
The Indian-focused fintech has defied the odds of many in the sector to rise ~300% over the past year and 90% YTD, copping a speeding ticket from the ASX to explain why its share price had risen from 92 cents to $1.735 between January 19–31, 2024.
In an ASX announcement FND says “its not aware of any information that has not been announced which is an explanation for the recent trading in its securities”.
The company announced strong H1 FY24 results in November including:
Statutory revenue of $31.757 million, up 30.2% on pcp and EBITDA rising 84.4% on pcp to $12.648 million
Operating cash flows of $19.40 million, compared to $4.7 million for the full 12 months to March 2023, following higher and sustained cash conversion from EBITDA
Statutory net profit after tax of $1.098 million, up from $190k on pcp
Basic EPS of 3.0079 cents/share, up from 0.0605 cents/share on pcp
The company has inked a 10-year deal with India’s largest bank, the State Bank of India (SBI), that will generate revenue up to $620 million by deploying 4,219 ATMs across India.
FND has been providing ATMs for SBI through a third-party outsourcing contract since 2016, but following its expiry is contracting through its wholly owned subsidiary Transaction Solutions International (India) Pvt Ltd (TSI India) directly to SBI.
The fintech is now one of the largest non-bank ATM operators in the world’s most populous country, with a network of 20,500+ ATMs.
Wisr (ASX:WZR)
The consumer lender with a focus on financial wellness achieved EBITDA profitability for a financial half year for the first time in H1 FY24 with a notable turnaround to $200k from a $900,000 loss in the pcp.
Other financial highlights for H1 FY24 include:
Revenue $48.1 million, an 11% increase on pcp
Portfolio net interest margin (NIM) of 5.34%, up from 5.23% on pcp
Front book December 2023 run rate NIM of 7.16%, up from 6.12% for December 22
Portfolio yield 10.51% with front book December 2023 run rate yield of 13.43%, up from 11.54% in December 2022
Opex $13.1 million, a 26% decrease on pcp
WZR chief executive Andrew Goodwin told Stockhead that H1 FY24 was all about revenue growth and EBITDA profitability before recommencing loan volume growth in H2 FY24, subject to appropriate market conditions.
“We have shored up the business on the back of macroeconomic changes and we’re now ready to recommence growth which I think is quite exciting,” he says.
Goodwin says economic conditions with higher inflation and interest rates have been challenging for fintechs and WZR.
“The businesses that very much got hit hard were what I would define as high growth and pre-profitability exposed to rates and we were all over those,” he says.
“What we’ve done in the past 12 months or so is re-calibrate the business, get the loan unit economics correct, get our OPEX and processes under control and focus on profitability waiting for the time when we look to scale again.”
Plenti Group (ASX:PLT)
Established in 2014 and listed on the ASX in 2020, PLT has also been on the rise in the past year, up more than 58%.
Specialising in providing “faster, fairer loans” through its advanced smart technology, PLT offers loans across various sectors, including automotive, renewable energy, and personal financing for creditworthy borrowers.
In November PLT announced a strategic partnership with National Australia Bank (ASX:NAB), resulting in the introduction of a “NAB powered by Plenti” car and electric vehicle loan. Additionally, PLT’s renewable energy finance options have become accessible to NAB customers.
PLT also entered into an equity investment agreement under which NAB may acquire up to 15% of PLT’s share capital through placements and market purchases.
In its latest Q3 FY24 update PLT says its loan portfolio increased to $2.07 billion, 24% above PCP and 4% above prior quarter.
With a focus on loan profitability loan originations of $291 million were 2% below PCP and in line with prior quarter.
90+ day arrears were 46bps at the end of the quarter, which PLT says was stable on the end of the prior quarter result of 45 basis points.
Quarterly revenue of $54.4 million, 46% above PCP, was driven by loan portfolio growth and the higher interest rate environment.
In its outlook PLT says it’s on target to achieve its FY24 priorities and objectives including driving growth in loan originations and loan portfolio, growing revenue to more than $200 million, and delivering full year cash NPAT growth.
Other objectives for FY24 include reducing cost-to-income ratio to less than 30% along with remaining on target to deliver $25 million in efficiencies as PLT’s loan portfolio scales towards $3 billion.
CEO Daniel Foggo told Stockhead PLT has fared well over the last year, “benefiting from our scale, prime credit customers, and our technology foundations”.
“Plenti has cracked a $2bn loan book and is cash NPAT profitable – and the economies of scale we have realised have more than offset the pressures lenders have experienced over the last year,” he says.
“We have also continued to strengthen and diversify our business, including through the strategic partnership with NAB which was announced at the end of last year, where we will be launching co-branded and Plenti branded finance solutions to NAB’s large customer base.
“We are seeing an improved operating environment so in 2024, with lower funding costs and resilient consumer demand, which coupled with our own initiatives, sets us up for a strong year ahead.”
The FND, WZR & PLT share price today:
At Stockhead, we tell it like it is. While Wisr is a Stockhead advertiser, the company did not sponsor this article.
The post What KPMG reckons about fintechs in 2024 and ASX players to watch – Part One appeared first on Stockhead.
