Cash Flow Underwriting And Lending Automation Will Drive Durable Earnings Power

Catalysts

About Beforepay Group

Beforepay Group provides responsible pay advances, data driven lending and credit decisioning solutions to consumers and financial institutions.

What are the underlying business or industry changes driving this perspective?

• Ongoing mix shift toward lower risk, higher value customers in the Pay Advance book supports structurally higher average advance sizes and persistently low net default rates, which can underpin revenue growth and stronger net transaction margins.
• Scalable personal loans platform positioned for a deliberate ramp from FY 2026 in a large addressable market, where proven credit performance and existing funding capacity can translate into step change growth in fee income and earnings.
• Growing adoption of cash flow based underwriting and alternative data in lending, where Carrington Labs’ tailored risk models and cash flow score can capture share from legacy credit score providers, lifting high margin software and services revenue over time.
• Global lenders’ need to automate and modernize loan decisioning in response to regulatory pressure and cost constraints, which plays directly to Carrington Labs’ cloud native, API first offering and can support operating leverage as recurring revenue scales faster than fixed costs.
• Disciplined cost control, lower digital media spend driven by sophisticated lifetime value modelling and self funding advances indicate a capital light, cash generative model that can expand net profit margins even if top line growth moderates.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Beforepay Group's revenue will grow by 10.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.7% today to 26.1% in 3 years time.
• Analysts expect earnings to reach A$14.0 million (and earnings per share of A$0.26) by about December 2028, up from A$6.7 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 13.0x on those 2028 earnings, down from 19.7x today. This future PE is greater than the current PE for the AU Consumer Finance industry at 10.7x.
• Analysts expect the number of shares outstanding to grow by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.92%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The current profit surge is heavily influenced by seasonally strong credit outcomes in Q1 and exceptionally low net defaults of 0.67%. Any normalization of defaults as consumer stress rises into holiday periods or over a full credit cycle could compress the net transaction margin and reduce earnings power over time.
• The strategic shift toward a smaller pool of higher value, lower risk customers may limit long term addressable demand if competitive offerings or macro weakness reduce this cohort. This could slow advances growth and cap revenue expansion despite strong unit economics.
• The personal loans product is still very early stage at about 1,500 loans totaling roughly $4 million. Scaling it into a material, several hundred million dollar book will likely require greater funding, marketing and operational spend, which could pressure operating expenses, weaken net profit margins and introduce higher credit risk if underwriting proves less robust at scale.
• Carrington Labs is operating in a large but slow moving institutional market where sales cycles with big banks and nonbank lenders are long and unpredictable, and current revenues are not yet material to the group. Delays or shortfalls in converting its strong pipeline into sizeable, recurring contracts would undermine expectations for high margin software growth and future earnings diversification.
• The industrywide adoption of AI and alternative data in lending will intensify competition from incumbent credit bureaus and other fintechs. If Beforepay’s cash flow scoring and tailored risk models fail to achieve clear performance or regulatory advantages, pricing power and client uptake for Carrington Labs could be weaker than anticipated, limiting long term revenue growth and margin expansion from that segment.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of A$3.0 for Beforepay Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be A$53.7 million, earnings will come to A$14.0 million, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of A$2.67, the analyst price target of A$3.0 is 11.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.