MyBucks — Building mass while improving efficiency

MyBucks (DB: MBC)

Currency in EUR

Last close As at 26/01/2023

EUR0.06

0.05 (400.00%)

Market capitalisation

EUR1m

Research: Financials

MyBucks — Building mass while improving efficiency

MyBucks (MBC) continues to expand its lending business organically, leveraging the acquisitions of banks from Opportunity International (in particular those operating in Mozambique and Uganda) completed in H117. At the same time, it introduced several measures to optimise its funding structure and reduce the cost of debt. MBC aims to move towards break-even at net income level through expanding its product offering, entering new regional markets, further technological innovations, as well as continued focus on operating and funding cost reductions.

Milosz Papst

Written by

Milosz Papst

Director, Financials

Financials

MyBucks

Building mass while improving efficiency

Financials

Scale research report - Update

15 November 2018

Price

€7.25

Market cap

€92m

Share price graph

Share details

Code

MBC

Listing

Deutsche Börse Scale

Shares in issue

12.7m

Last reported net debt at 30 June 2018

€127.6m

Business description

MyBucks is a Luxembourg fintech company listed in Frankfurt. It provides unsecured loans, banking solutions and insurance to customers and SMEs in 11 African countries, Europe and Australia. It uses AI technology to assess creditworthiness and is fully integrated with local banking systems.

Bull

Large target market, with mobile and internet penetration well ahead of traditional banking.

Well-capitalised, and with new and pending banking licences.

Proprietary AI and integration with local government and banking systems.

Bear

Sub-Saharan Africa is arguably at higher risk from financial and political shocks than more developed markets.

Competition from traditional microfinance institutes and banks.

Regulatory risks related to cryptocurrencies and their usage.

Analyst

Milosz Papst

+44 (0) 20 3077 5700

MyBucks (MBC) continues to expand its lending business organically, leveraging the acquisitions of banks from Opportunity International (in particular those operating in Mozambique and Uganda) completed in H117. At the same time, it introduced several measures to optimise its funding structure and reduce the cost of debt. MBC aims to move towards break-even at net income level through expanding its product offering, entering new regional markets, further technological innovations, as well as continued focus on operating and funding cost reductions.

Solid growth and improving quality of loan book

MBC’s loan book increased by 25.1% y-o-y to €85.7m in FY18 assisted by all segments, in particular individual and SME lending (as banking income is still a minor contributor and insurance revenues grew by c 6.5% y-o-y). At the same time, loan impairment charges declined by 3.0% y-o-y (despite the spike in South Africa), and compared to revenues stood at 19% (vs 22% in FY17). The company was able to improve the quality of its portfolio with provisions to gross book ratio standing at 10.9% in FY18 vs 20.2% last year. Amid the lack of recognized restructuring expenses (FY17: €0.7m), operating profit rose 26.6% y-o-y to €14.4m in FY18.

Gearing and cost of debt optimisation underway

The company retains its focus on optimising its funding sources. Proceeds from the private placement conducted in February 2018 were used to reduce the cost of debt from 21% to 15% pa (which will be fully reflected in the FY19 results). Although MBC’s gearing ratio remained stable at 84% vs last year, its debt structure has altered. MBC reduced its exposure to loans from related parties that had a relatively high interest rate, while increasing the reliance on operational-level bonds and local bank facilities. It has also grown its customer deposit base to €20.6m from €11.5m.

Valuation: Reflecting early stage of the business

The company is yet to reach break-even at the net income level and there is no consensus available at the moment. MBC’s shares trade at a last 12-month (LTM) EV/Sales ratio of 3.6x, implying a 8% premium to peers. MBC’s LTM EV/EBITDA stands at 12.1x vs 6.4x for Ferratum (one of its closest peers), which is common for growth stocks.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(c)

DPS
(€)

P/E
(x)

Yield
(%)

06/15

31.3

5.7

33.42

0.0

21.7

N/A

06/16

38.9

0.9

(6.45)

0.0

N/A

N/A

06/17

55.8

(7.2)

(1.10)*

0.0

N/A

N/A

06/18

61.3

(4.6)

(0.83)*

0.0

N/A

N/A

Source: MyBucks accounts. Note: *From continuing operations.

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Financials: Loan book expansion with improved quality

MBC was able to increase its loan book by 25.1% y-o-y to €85.7m in FY18 (ending June 2018), which translated into a 9.9% y-o-y increase in the company’s revenues to €61.3m. This was driven in particular by organic sales growth in the individual and SME lending segments (up by 7.5% y-o-y to €55.5m and 158.9% y-o-y to €1.8m, respectively).

The largest top-line contribution came from South Africa, where revenues increased by 34% y-o-y to €13.3m. Mozambique operations (established in July 2017) recorded an improvement in loan book of 30% y-o-y and revenue more than doubled from €2.3m to €5.0m. Importantly, this was accompanied by an improvement in loan quality (as measured by provisions to gross loan book) to 4% from 8% a year ago. As a result, operations in this region turned profitable, with profit after tax at €1.2m. Uganda also performed well, with growth in loan book at 55% y-o-y, profit after tax of €0.9m and loan quality at 4%. In Zimbabwe, despite the political turmoil, MyBucks achieved an increase in loan book to €18.4m from €12.3m a year ago and a profit after tax at €3.8m. This was driven by the business model shift to include product financing through a joint venture model with retailers. Business in Kenya remains challenging (with revenues down 28% y-o-y), although it was able to reduce its loss by 69% to €0.6m and local management plans to reach break-even point in FY19.

MBC recorded a lower impairment charge to revenue ratio at 19% in FY18 (vs 22% in FY17). This was despite a 114% y-o-y increase in South African impairment charges to €7.4m, resulting from a change in the debit order dispute mechanism at South African banks. Importantly, the company highlighted that debt relief legislation (debt cancellation for consumers earning less than ZAR7.5k with total debt of less than ZAR50k) remains a real risk ahead of the elections. MBC maintained its loan impairment charges in nominal terms at a broadly stable level (down 3% y-o-y) and improved the loan book quality, which was reflected in a reduction of provisions to the gross loan book ratio from 20.2% to 10.9%. This was assisted by the higher contribution from banking operations (which on average have a better loan book quality than MBC’s lending operations) and the continued implementation of AI-driven solutions. With the cost to revenue ratio remaining stable at 69%, MBC’s operating profit reached €14.4m, implying a 26.6% y-o-y increase.

In February 2018, MBC issued 1.3m new shares in a private placement, with a dilutive impact of c 11%. Net proceeds of €11.5m were used to drive lending volumes, but also to restructure the company’s borrowings, which resulted in a decline in the average cost of debt (as measured by the hard currency refinancing rate) from 21% to 15% pa. As at end FY18, the cost of funding has been already reduced from 24.2% to 19.1%. Nevertheless, MBC’s interest expense went up to €20.9m in FY18 from €17.5m, as the full effect of these funding cost savings (estimated by MBC at a pro forma annualised level at around €3.5m) will not be fully visible until FY19. Consequently, MBC remains below its break-even point, with FY18 loss after tax from continuing operations at €7.2m (reduced from a €10.7m loss in FY17). The company also booked a loss from discontinued operations at €1.0m, associated primarily with activities in Poland.

Exhibit 1: Results summary

€000s

FY18

FY17

y-o-y % change

Revenue

61,307

55,791

9.9%

Individual lending revenue

55,468

51,611

7.5%

Banking income

733

387

89.3%

Insurance revenue

3,293

3,093

6.5%

SME lending revenue

1,812

700

158.9%

Loan book impairment charges

(11,834)

(12,194)

-3.0%

Other income

6,792

6,512

4.3%

Operating expenses

(12,401)

(12,964)

-4.3%

Operating profit

14,440

11,410

26.6%

Operating margin

24%

20%

310bp

Investment revenue

3,671

2,684

36.8%

Finance costs

(22,724)

(21,326)

6.6%

Profit before tax

(4,613)

(7,233)

-36.2%

Income tax

(2,587)

(3,429)

-24.6%

Profit after tax from continuing operations

(7,199)

(10,661)

-32.5%

Discontinued operations

(993)

(2,353)

-57.8%

Profit after tax

(8,192)

(13,014)

-37.1%

Source: MyBucks accounts, Edison Investment Research

MBC’s gearing level, as measured by net debt (including customer deposits) to the sum of equity and net debt, remained broadly unchanged vs FY17 at 84%, as higher net borrowings were accompanied by the capital raise. The company recently received additional funding from the bond listings in Mozambique and Malawi. It is also visibly expanding its deposit base, which reached €20.6m in FY18 compared with €11.5m in FY17. It currently covers c 24% of its loan book (vs 17% in FY17) and it is worth noting that MyBucks for now has a banking licence in selected countries in which it operates. MBC reported negative cash flow from operations (which includes interest paid) at €25.1m in FY18 (vs €28.4m in FY17), which is primarily associated with the growing loan book. This was largely funded by the equity issue to shareholders of the parent company, as well as minority holders of MBC’s subsidiaries.

Further technological initiatives underway

MBC continues to develop and expand its product offering, with a strategic focus on financial institutions in Africa. In the course of FY18, the company entered into an exclusive partnership with the NAGA Group. The partnership will enable MBC’s 1.5 million customers to gain access to NAGA’s crypto wallet and hence expand its product offering. MBC continues to place AI at the forefront of its technology drive. Its new technology, text-based virtual assistant (TESS), has already been launched to a WhatsApp-based lending application and is utilised on the company’s website.

In addition to the improvement of its current business operations (which involves, for instance upgrades to the core IT systems of acquired banks), MBC is deploying its technology globally through joint ventures, franchises and service agreements. Moreover, MBC acquired the parent company of Fundco, an Australian consumer lending business. Consequently, Fair Go doubled the size of its loan portfolio and became the fifth largest lender in the Australian market. The purchase price amounted to c €7m.

Valuation

It is difficult to value MBC given that the business is at a relatively early stage and the company has recently acquired a number of entities, which subsequently required a certain amount of restructuring and integration efforts. Moreover, MBC’s reported financing costs still translate into a consolidated net loss (despite selected regional operations being profitable). As there is no market consensus available for MyBucks, we have decided to examine the LTM EV/Sales ratio, which currently stands at 3.6x for MBC. This represents a c 8% premium to peer average. In turn, MBC’s LTM EV/EBITDA ratio equals 12.1x, which compares with the corresponding multiple of 6.4x for Ferratum, also a Germany-listed, technology-led mobile consumer lender.

Exhibit 2: Peer group comparison

 

Market cap

P/E (x)

EV/Sales (x)

 

(€m)

LTM

2019e

2020e

LTM

2019e

2020e

Ferratum

264.16

12.27

9.29

6.51

1.01

0.82

0.68

On Deck Capital

667.16

57.83

15.51

13.08

3.28

2.91

2.55

Letshego

318.43

5.41

4.81

4.24

3.34

2.92

2.56

Capitec Bank

7,691.06

25.26

20.88

17.19

5.36

4.65

4.03

Atlas Mara

346.34

7.78

8.02

6.82

3.48

2.81

2.43

Peer group average

21.71

11.70

9.57

3.29

2.82

2.45

MBC

90.80

N/M

N/A

N/A

3.56

N/A

N/A

Premium/discount

N/M

N/A

N/A

8%

N/A

N/A

Source: Thomson Reuters, Edison Investment Research. Note: Prices as at 14 November 2018. Numbers for peers adjusted for differences in fiscal year-end.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors.

Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

More on MyBucks

View All

Latest from the Financials sector

View All Financials content

Research: Investment Companies

Fidelity China Special Situations — Accessing China’s superior growth prospects

Fidelity China Special Situations (FCSS) aims to provide an attractive way for investors to gain exposure to the faster-growing areas of the Chinese economy, with China’s growing economic influence raising its importance within a balanced portfolio. FCSS’s longer-term performance has been strong – its NAV total return is ahead of the MSCI China index over five years and since its launch in 2010 – but returns are negative over one year, reflecting the Chinese stock market downturn. While market sentiment has suffered due to the US-China trade dispute, earnings forecasts have been largely unaffected, and the manager has used the correction to add to holdings with strong long-term prospects at historically low valuations.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free