Prospa loan originations outpace forecasts

In a notice to the ASX, Prospa has revised its financial performance forecasts from the company’s prospectus, and announced that it expects its loan originations to be above prospectus forecast figures for both the full 2019 calendar year and for the first half of financial year 2020 (1HFY20)

Prospa expects loan originations figures for the full 2019 calendar year (CY19) to be 2.7 per cent above its prospectus forecast at $574.5 million, and up 32 per cent from CY18.

Further, in the first four months of FY20, loan originations were up 40 per cent from the same period in FY19, with Prospa growing its loan customer numbers to 24,000.

The company now expects total originations for FY20 to be in the range of $626 million to $640 million, an increase of between 25 per cent and 28 per cent on FY19, and loan book revenue to be at least $150 million.

Prospa’s total loan book currently sits at $1.3 billion.

While performance of Prospa’s loan book is due to exceed prospectus expectations, the company’s projections for revenue are down from original forecasts.

Revenue is still expected to be up 16 per cent compared with CY18, but the figures look to be down 8 per cent on the prospectus forecast. 

The SME lender attributes the lower-than-expected revenue figures to recent moves towards “premiumisation”, which sees “premium quality credit customers” paying lower interest rates over longer terms.

After releasing a new rate card in April, the lender saw more growth in premium customers than anticipated, with 43 per cent of Prospa’s portfolio now represented by premium customers, according to the ASX notice.

In the notice, Prospa noted that: “The evolution in book composition towards premium grades has led to a short-term impact on revenue, despite the positive impact premiumisation has had on market penetration, operating leverage, funding diversity and portfolio resilience.”

Prospa stated that early indications suggest that the static loss rates in the growing premium section of its loan book are well below 4 per cent, which is the bottom of the risk appetite range.

Total operating costs are expected to be 4.7 per cent lower than the prospectus figure, while forecasts for earnings before interest, tax, depreciation and amortisation plummeted 62.3 per cent from the prospectus, to $4 million. 

Commenting on the ASX announcement, the co-founder and joint CEO of Prospa, Greg Moshal, acknowledged that the company is facing “short-term impacts” on its forecasts, but expressed confidence that Prospa has the “right growth strategies to deliver long-term shareholder value and solve the funding challenges of small-business owners across Australia and New Zealand”.

“Originations are growing,” Mr Moshal said. “Portfolio premiumisation means a higher quality loan book and lower rates and longer average terms for our customers. 

“Early loss indicators continue to improve, and we expect to continue to invest in new products, sales and marketing.”

[Related: Prospa reports 36% growth in loan originations in FY19]