Well, let's look at the auto loans in particular, as this is the business they're looking to fund and grow:
FY17 1H:
$27.1m revenue (from presentation)
Average size of book: $170.85m (just auto loans, using gross value)
Annualise that revenue figure (as it's for 6 months): $54.2m
Cost to fund the loan book (Assume all borrowed @ 12%): -$20.502m
Net: $33.7m
In this, they still have to account for all other expenses, including bad debts (provision and actual). I daresay that if they funded the entire book like this there would be little to no profit.
However, that's not reflective of reality. The loan book grew ~$50m in the half (using 1H presentation), yet expenses were reduced (-3.5%). This tells me:
1) There's operating leverage within the business
2) Other loan books cost more to run than the auto loan book (not entirely true, it's the lending channels that reduced costs. But there are no brokers for SACC loans. Check the segment figures in the report for more info here... it's very telling.)
3) Bad debt expense for auto loans alone is masked by movements in unsecured credit loans.
The way I see it, they're using current operational structure, charging 31.7% (from 1H) on auto loans (incl. fees and other charges) and paying 12% on finance.
Looking forward:
If the EBITDA margin of 45% is maintain throughout next year and the loan book is flat, I would expect something along the lines of:
Revenue: $67.6m (auto loans) + $54m (SACC/Other unsecured credit)
= $121.6m
(Auto loans calculated at current rate on average book)
(SACC/Other also calculated at current rate on average book)
EBITDA: $54.7m
That's a rough estimate, and should be used as a guideline only. I'm not using this as any sort of forecast. After this, you'd have to factor in increased finance costs, etc.
Calculating EV, I get:
MC $200m + Net Debt $70m (10m cash, 80m borrowings) = $280m
EV/EBITDA = 5.11 times
This assumes:
- the same EBITDA margin (big assumption, it includes provisioning/bad debts, finance costs, etc.)
- No growth in loan books
As/if debt grows, I will become more wary of this. For this reason, it's not a large position (~4%). Further, I also have a position in FSA, so I have auto loans exposure through both companies.
EDIT: Also worth mentioning that Ray Malone is chairman, and TOP own both MNY debt and equity.
