Prospa claims its proprietary algorithm, which analyses significant amounts of data, allows it make decisions on loans more quickly than other lenders. It has attracted controversy over the high interest rates it charged customers. Its small business customers were charged annual interest rates of more than 40 per cent for short-term, unsecured loans.
Earlier this year, Prospa said its weighted annual percentage rate for loans was 36 per cent. In the prospectus Prospa said it has dropped its interest rate charges for customers as its cost of funding has reduced. Its ‘Annual Simple Interest Rate’ now ranges from 9.9 per cent to 26.5 per cent.
The deal will value the company at 3.3 times revenue for the current year compared to a valuation of 4 times revenue ahead of its previous IPO attempt, in which the company planned to raise $146.5 million at a valuation of $576 million.
For the financial year, the prospectus is forecasting net revenue of $127.6 million for the year ending June 30, and a pro forma loss of $1.5 million for the 2019 financial year. This compares to a net profit of $1.3 million the prior year. On a statutory basis the company is forecast to report a net loss of $16.9 million for 2019.
Loan impairments of $32.3 million, are forecast to exceed funding costs of $20.6 million for the financial year.
For the first half of the 2020 financial year the company is forecasting a net profit of $5.8 million.
The majority of funds raised, around $60 million, will be used to fund the company’s loan book and provide working capital, investment in new products and geographies, and repay debt.
“We will continue to invest in the customer experience, technology and people in order to build products and services that allow small businesses to prosper,” said Ms Pemberton.
“We’re proud of our achievements so far, but we believe this is just the beginning,” said company co-founders Greg Moshal and Beau Bertoli.
The company recently expanded into New Zealand, and also introduced new products like Prospa Pay which it described as a buy now, pay later solution for small business customers who can buy from approved vendors on an interest-free basis.
Around $50 million raised from the IPO will go to current investors selling down their stakes.
AustralianSuper and Entree Capital, which are existing investors, plan to acquire more shares in the IPO.
Entree will be Prospa’s largest shareholder with a 33.8 per cent stake after the float, followed by Mr Moshal with 15.3 per cent and Airtree with 9.1 per cent.
The retail offer opens May 24 and closes May 31. The deal is being managed by UBS and Macquarie Capital who conducted the previous float process.
Prospa’s original IPO plans collapsed last June after the securities regulator questioned whether its small business lending model complied with industry regulations.
The company proceeded to raise $43 million in a pre IPO funding round from existing investors including AirTree, Square Peg and AustralianSuper.
Colin Kruger is a business reporter. He joined the Sydney Morning Herald in 1999 as its technology editor. Other roles have included the Herald’s deputy business editor and online business editor.