Prospa Group (PGL) 79.5c

Prospa Group is a small & medium enterprise (SME) lender, specializing in loans up to $500k to customers in Australia & New Zealand. It’s small with a market capitalization of $130m, however, it recently posted a strong FY22 result with EBITDA more than doubling, and positive earnings. In the last quarter, they wrote a record $245.7m in loans, taking the total loan book to over $700m. Funding costs have been coming down despite rising interest rates, falling from 6.7% in FY20 to 5% in FY22. Metrics point to an outstanding business with strong repeat customers and a brand that is ticking boxes in terms of customer satisfaction. The issue will be if SME’s are heavily impacted by a slowing economy, and so-called zombie companies have a negative influence on PGL’s bad debts. While we like the business, we think it’s prudent to wait and see how their underlying credit quality holds up for a longer period of time before considering buying Prospa.