MoneyMe tanks following $20m capital raise: Ordinary shareholders cold shouldered

With the market down around 2% at noon, the market was taking a decidedly suspicious stance on any news it either didn’t like or understand today.

Lender, MoneyMe (ASX: MME) found itself in the eye of the market’s wrath with the small cap down a lofty -25.18% after completing what management presumably thought would be an unassuming capital raising for $20m.

Commenting on the placement today CEO Clayton Howes welcomed a number of new high-quality institutional investors onto the company’s share register.

“Capitalising the business in a challenging environment to fund asset growth and support debt facilities is important and a good step for the business.”

What didn’t the market like?

In an attempt to wrap the capital raise up swiftly, MoneyMe opted for an institutional placement at a price of 50c per new share - a 28% discount to the last close price on Monday at 69c - over a lengthier renounceable entitlement offer.

In short, ordinary shareholders were left out in the cold, while the company felt it appropriate to offer a $1.2m special placement to directors.

This has done little to ingratiate shareholders to management or the company.

Around 40m new fully paid ordinary shares are being issued under the placement, which effectively represents around 18% of total stock.

Dilution dilemma

But without tickets to the dance, ordinary shareholders are left to sit and watch while their share of the business effectively shrinks.

Whether the placement can increase the company’s value by a corresponding amount remains to be seen, but shareholders clearly aren’t holding their breath.

However, assuming MoneyMe can grow its $1.35bn loan book by 20% using fresh equity, Intelligent Investor suspects earnings per share growth - when combined with a return on equity of 20-60% - will grow, despite the dilution.

FY22 result

MoneyMe’s capital raise took the market’s attention away from what was a solid full year FY22 result announced yesterday.

Gross revenue was up 148% to $143m year-on-year (YOY), while contracted revenue – a measure of future interest payments embedded within the current loan book - was up 305% YOY to $398m.

Cash net profit (NPAT) of $20m, was also up 70% YOY.

Key FY22 highlights included:

• Completed the acquisition of SocietyOne in March 2022 with material cost synergies already delivered ahead of schedule

• Gross customer receivables of $1.35bn, up 305% year on year

• Originations of $1.1bn (42% secured asset finance), up 191% YOY

• 4x increase in external securitisation funding facilities to $1.7bn

• Autopay secured asset finance book balance of $445m, up 70x YOY

• -9% decline in average funding cost, which sits below 5%

Looking forward

Management guided to revenue of $200m-plus in the year ahead, an increase of at least 40%.

While management didn’t drill down into specifics beyond that, everything being equal, Intelligent Investor suspects underlying net profit should be at least $28m.

“With a single-digit price-earnings ratio and plenty of growth potential, the stock continues to look undervalued – though any investment comes with significant risks,” the fund manager notes.

Consensus on MoneyMe is Strong Buy.

Based on Morningstar’s fair value of $1.69 the stock appears to be undervalued.

MoneyMe share price over one year.