I thought I'd chime in... haven't posted in ages, hope you are well!
So re Prospa, I think the model is very challenging, for a number of reasons:
1) They spend an untold fortune putting on business - $300m of loans, which is a lot of business no doubt... but due to the one off, non-recurring nature of the loan types, their book doesn't compound easily, in the same way a typical business financier/debtor financier's would. Their attrition is technically circa > 100% annually, as opposed to your normal 10-20% of book in the case of SCO or other business financiers... hence their book is only $180-$200m.
This effectively means, that if they stopped selling tomorrow, most of their book and business would be gone within 6 months... where as say an SCO would take circa 10 years or more before its book fully unwound.
They are also funding unsecured up and over 12 months... where as most traditionals are funding debtors or receivables every 60 days...
This is a general issue with short term funding models, and a contributing reason to why the likes of Ondeck now trade at a mere 1x revenue... coupled with the similar levels of bad debt % ... I find it very convenient that Macquarie just ignored Ondeck as a comp, and even more comical that Prospa will have a higher market cap than the whole of Ondeck ( Globally) ... which does 4-5x the revenue and is in US! If this isnt a serious red flag for investors, then they are clearly blind.
Prospa is IPO'ing for circa 2.8x book - which is a huge premium - you'd only pay a premium on book if it were going to be almost annuity like in its existence... and bound to be a multiple of its current size in the near future.... which it clearly cannot guarantee.
2) Bad debts are obscene... north of $20m, for a relatively modest size book of $200m.... and potentially understated, due to their intentional rapid growth in the last year, no doubt to coincide an IPO... My guess is over the next 6 months, bad debts could sky rocket even more, to reflect this.
3) Cost of funds are huge... No suprise this business cannot really obtain traditionally price warehousing... My guess is their blended cost of funds are circa 20%... and there is little comfort given around continuity of funds... This makes sense, as they are funding businesses that no bank or other lender would touch, and they would never be able to meet any covenants... I think the big four probably also see putting a funding line in place for them, potentially hazardous to their already sullied reputation(s), in light of the Royal Commission.
I also saw
@Warnie mentioned funders are escrowed for a short period, so this business clearly needed cash in, to potentially cover funding needs.
4) Their average APR is circa 40-45%... and in some cases much higher... now with the influx of all the "Me-too" short term funders, and things like the Royal Commission on SMEs coming into full force, you'd imagine there will be a lot of downward pressure here. If Prospa continue to charge 40% - you'd think, they will either be forced even further down the credit tree ( if that's even possible), or they will lose business to the hoard of clones that are now playing in the space.
I think if this Business IPO'd at 1x book it would still be expensive, but probably at the top of whats acceptable... as in maturity, most profitable finance companies trade at say 0.5-0.75x book... It seems like a very advantageous listing price...potentially only rivaled by Raiz for its mix of high price and probability of failure.
