The Money3 Corporation Limited (ASX: MNY) share price has sunk more than 7% today after the automotive lender released full year results below expectation. A $10.1 million impairment provision related to COVID-19 weighed on profits despite strong loan book growth.
What does Money3 do?
Money3 provides personal and automotive loans in Australia and New Zealand. Prior to the pandemic, the company was originating more than $1 million in loans every business day. Money3 had previously provided guidance for net profits after tax (NPAT) of around $30 million for FY20, but withdrew guidance in March due to the coronavirus pandemic.
How did Money3 perform?
Money3 saw strong growth in the loan book in the first half of the financial year, but growth slowed significantly in the second half.
With consumers paying extra attention to budgeting due to the economic slowdown, many were wary of taking on new financial commitments such as car and personal loans. Loan originations were lower than expected as a result of COVID-19 and tightened lending criteria. Over the full year, the gross loan book grew 16.4% to $433.8 million.
Revenue increased 35.3% to $124 million while earnings before interest, taxes, depreciation and amortisation (EBITDA) increased 31.1% to $60.7 million. Cash collections increased 36.3% to $277.2 million as customers made efforts to increase loan repayments in the face of uncertainty.
Money3 says the overall loan book quality and arrears performance has not deteriorated over 2020. Nonetheless, given increasing economic uncertainty as a result of COVID-19, the company has taken a $10.1 million non-cash economic outlook provision.
Normalised NPAT increased 14.2% on the previous year to $32.3 million, but the impact of the COVID-19-related provision resulted in a statutory NPAT of $24.2 million. A final fully franked dividend of 3 cents per share was declared, taking the full year dividend to 8 cents per share.
Managing director Scott Baldwin said: "Through all the challenges the Group has faced, including COVID-19, we continued to grow, which is a testament to the team's deep knowledge of the industry and commitment to succeed."
What's the outlook for Money3?
The Money3 share price has been punished by investors today, but is still up 125% from its March low. Despite tightened lending criteria, Money3 saw a return in loan application volumes in June and July. This, along with reduced competition in the sector, leaves the team confident of seeing solid loan growth in the new financial year.
A strategic review of product offerings has resulted in an expansion in the near prime sector, broadening the addressable market. Expanding distribution should lead to solid organic growth in FY21 with Money3 confident of loan book growth exceeding $500 million.
