Real Estate

PEXA consolidates UK footprint

By Market Index
Thu 08 Sep 22, 11:11am (AEST)
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Key Points

  • PEXA acquires Optima Legal, one of the largest mortgage processing firms in the UK
  • PEXA’s UK digital platform promises to help streamline the country's antiquated property remortgage and completion process
  • Management guided to an exchange earnings (EBITDA) margin in the 50%–55% range

Two weeks after announcing a full year FY22 statutory net profit after tax (NPAT) of $21.9m, up from a loss of $12m last year, e-conveyancing firm PEXA Group (ASX: PXA) has announced the pending acquisition of leading British remortgage processing firm Optima Legal, from Capita plc (Capita) for an undisclosed amount.

Given the strategic nature of the acquisition, the acquisition is expected to generate an immaterial operating loss in FY23.

What it Optima Legal?

Optima Legal is one of the largest mortgage processing firms in the UK, with approximately 22% share of the remortgage market and direct relationships with six of the UK’s top eight lenders.

The S&P/ASX 200 company believes the Optima Legal acquisition represents an exciting opportunity to facilitate the adoption of PEXA’s UK digital platform which went live yesterday.

By integrating PEXA’s UK platform into Optima Legal’s systems, PEXA believes it will be able to demonstrate the benefits of its new platform at scale.

Streamlining an archaic system

Yesterday’s launch of PEXA’s UK digital platform – which promises to streamline the property remortgage and completion process – also coincided with the UK’s first-ever digitally enabled remortgage transaction.

Hinckley & Rugby Building Society was the first UK lender to complete a remortgage using PEXA’s entirely new digital exchange and payment system.

PEXA’s British CEO, James Bawa described yesterday’s transaction as “a monumental moment” noting that PEXA was now in a position to take on as many lenders as the Bank of England would allow.

What else happened at the full year

While PEXA’s share price is flat over the past 12 months, the stock has been trending higher since hitting a low of $10.88 20 June.

Other milestones at the full year included:

  • Pro forma group earnings (EBITDA) of $152m, a 28% year-on-year gain, helped by a gross margin improvement by 100 basis points to 88%

  • PEXA Exchange transactions were up 22% from FY21

  • Revenue of $279.8m, up 27% year-on-year

What’s in store

Management guided to an exchange earnings (EBITDA) margin in the 50%–55% range.

The company plans to invest 20% of revenue into its PEXA Exchange technology in FY23 with priority on API development, cyber security and platform resilience.

Around $45m has also been earmarked for international expansion over the coming year, and another $15m to support organic growth.

PEXA share price has been bouncing higher since mid-June.


What brokers think

Consensus on PEXA is Moderate Buy.


Based on Morningstar’s fair value of $13.15 the stock appears to be overvalued and on a forward P/E of 34 times.


Morningstar expects recent strategic acquisitions to take longer than expected to yield returns given their strategic nature, a lack of disclosed acquisition metrics, especially around earnings accretion or cost synergies and the expectation of volume weakness.


Based on the two brokers that cover PEXA (as reported on by FN Arena) the stock is currently trading with 20% upside to the target price of $20.00.


While PEXA’s FY22 result outpaced guidance and consensus forecasts by 1% and 2%, Macquarie remains cautious given the macro environment but overall is positive. (No rating or price target).


The broker is forecasting a full year FY23 dividend of 0.00 cents and EPS of 43.60 cents.


UBS believes the company guidance implies a modest margin decline in the coming year, largely attributed to ongoing domestic tech spend.


The broker suspects spiralling market fears have led to the stock being oversold and expects the recent rebound to continue.


Buy retained, target falls to $20.00 from $20.50.

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Market Index

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