Stockmarket investors looking to invest in fast growing p2p online lending platforms haven’t exactly been spoilt for choice over the last year or so, with most focusing on just a handful of listed businesses in the US, notably LendingClub and OnDeck. But Australia can boast one much smaller alternative – local consumer lender DirectMoney.DirectMoney reversed into a mining business shell and listed on the Sydney ASX market under ticker DM1. Its shares have had a fairly torrid time in the last 12 months, trading down from a 52 week high of 24 cents to the current 4 cents a share. But the Aussie lender reckons it’s come up with a plan to arrest that sagging share price via a discounted 2 for 1 share offer – if all goes to plan (the open offer kicks off on 11 July and closes on July 22nd) the consumer lender will have secured a vital $5.7m which should help fund its ambitious growth plans.
The rights issue was announced earlier this week (on the 4th of July) and consists of a 1 for 2 rights issue at an issue 4.2 cents per new share. In total the business is looking to issue 135 million new shares taking the total to 407 million shares – the issue price 4.2 cents represents a 12.4% discount based on the 1-month volume weighted average price and a 6.7% discount of the previous closing price. The business currently boasts a market cap of $13.6m. Crucially the rights issue is already fully underwritten by Bell Potter Securities and backed by major shareholder Adcock Private Equity.
According to DirectMoney’s stockmarket submission, the extra money will support a number of business development pushes, not least the marketing of the Personal Loan fund as well as supporting additional lending. In addition, the funds will provide valuable working capital of $1.76m – in the last publicly released results for the six months to 31/12/15 DirectMoney reported revenue of $435k, against expenses of $5.7m. producing an overall loss of $5.2m. Cash on the balance sheet at the end of May was $1.46m.
The rights issue is timed to coincide with a major push into securing institutional capital to support the platform. According to DirectMoney its signed a non-binding term sheet with a “major Australian financial institution” for $20m loan funding facility and is also in negotiations with “another large financial institution regarding a similar, larger loan funding facility”. If all goes to plan the online lender is looking to roll out as much as $75m in extra capacity, which it says will generate a 1.5% servicing fee.
DirectMoney is led by executive chairman Stephen Porges – a former SAI Global exec and Aussie Homes veteran - as well as founder David Doust. The CEO is Peter Beaumont, a former banker. Shareholders include two key London based pioneers in the alternative finance space, Liberum and P2P Global Investments.
Online competitor to the big banks
Directmoney says its aim is to grab a share of the $90bn consumer credit market in Australia which is currently dominated by the big banks. Its core market is unsecured prime personal loans ranging in value from $5k to $35k on three to five year terms with rates that vary between 8.5% to 19.95%. In terms of origination the platform works closely with finance brokers, and currently boasts over 500 accredited brokers – to date it’s transacted with 25% of these.
On the investor side, the platform has run all its non-institutional loans through the retail approved DirectMoney Personal Loan fund. This pooled fund of loans is targeting a return 5 to 5.5% pa, with average written interest rates currently running at around 12.7%. In the last 12 months to the end of May 2016, DirectMoney says its loans returned unit holders 7.7% net of fees and provisions.
DirectMoney says it earns gross fees of up to 2.75% on assets in the fund and up to the end of May 2016 total loans advanced totalled $17.6m based on 896 loans at an average rate of 12.7%. Consumer borrowers mainly used the extra funds for debt consolidation (40%) and housing (25%). In terms of institutional flow, MacQuarie Bank has loans totalling $4.64m to date. The lender says its customers are typically prime customers ignored by the big banks (who historically charge very high rates on loans) looking for a 100% online product with no exit or admin fees.
If DirectMoney’s rights issue goes to plan – and it should as it is fully underwritten – the extra funds will give the lender the financial fire power to stay in the increasingly competitive Australian P2P market place, up against well-resourced competitors such as Ratesetter and SocietyOne. To date, SocietyOne has advanced $110m and Ratesetter $45m – DirectMoney has total advances of $17.6m by comparison. In truth its shareholders have not had an obviously happy time, with big operating losses and a wilting share price, but the potential for growth in Australia is huge.