Why the Earlypay (ASX:EPY) share price rocketed up 7% last week

In the week of its AGM, the EarlyPay share price has risen by over 7% as the company seeks to expand its markets, and reduces its costs.

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Among many announcements during its annual general meeting (AGM) last week, CML Group Ltd (ASX: CGR) voted to change its name. The debtor finance company is rebranding all of its disparate businesses to Earlypay. Although not yet changed on the ASX, the company has already launched a rebranded software-as-a-service (SaaS) platform and website. By the end of the week, the Earlypay share price had risen by 7.46%.

There were also many other structural changes announced during the AGM. For instance, a restructure of the company's debt financing portfolio, a distribution agreement with a large scale brokerage network, and the formal launch of its SaaS platform.

What's driving the Earlypay share price?

Earlypay is a non-bank lender in the commercial sector. Nonetheless, unlike non-bank lenders in the mortgage sector, its loans are not secured by real estate. Moreover, it specialises in debtor finance in the areas of invoice finance, asset finance and trade finance.

The company recently purchased a SaaS platform, moving its invoice financing operations onto a digital platform. The company believes this will increase its addressable market by 140%. 

Debt management

Like other non-bank lenders, Earlypay does not have deposits. Nor does it have access to the Reserve Bank of Australia's (RBA) $200 billion term funding facility (TFF). This is a facility that provides banks access to funds at the very low current cash rate of 0.1%. As a result, the company must rely on other mechanisms to secure the capital it needs to provide its loans. 

The Earlypay share price is benefitting, in part, by the restructure of its debt portfolio, shaving $1.5 million from its annual costs. This will include retirement of corporate bonds in December. In addition, it will move to warehouse funding, and tap the Australian Office of Financial Management (AOFM) for $36 million of capital via COVID-19 initiatives. 

Distribution agreements

Earlypay also announced a formal distribution agreement with COG Financial Services Ltd (ASX: COG), Australia's largest asset finance broker and aggregator. This will provide Earlypay with a much enlarged broker network through which the company can market to and educate potential customers. COG Financial Services currently holds a 16.3% stake in Earlypay as a result of a FY20 aborted takeover attempt.

In addition, Earlypay has appointed Mr. Stephen White to the board. Mr. White is also a current director of COG Financial Services. He has been appointed, in part, to facilitate the relationship between the two companies. 

Commenting on the opportunity with COG, Daniel Riley, CEO of CML said;

The agreement with COG facilitates access for CML to Australia's largest distribution network for commercial finance. The CML team looks forward to working with COG brokers to offer its finance solutions to SME's and anticipates an opportunity to expand business volumes across all products.

Foolish takeaway

Earlypay believes it has significantly increased its addressable market by moving to a SaaS platform, and a distribution agreement. It has also dramatically reduced costs in its debt portfolio, along with cost reductions achieved during the COVID-19 lockdowns.

The Earlypay share price is now enjoying a level of upward momentum. This was after falling substantially in May when the aforementioned takeover deal fell through.

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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