Loan Origination And AI Automation Will Boost Efficiency

Key Takeaways

• Wisr's technology-driven automation and AI-enhanced processes improve operational efficiency, boosting potential for profitability and earnings growth.
  
• Strong capital position and favorable market conditions support Wisr's scalable growth and potential financial stability.
  
• Heavy reliance on external funding and technology-driven processes introduces risks to earnings and operational efficiency, facing competitive pressures in loan market share expansion.

Catalysts

Engages in the lending business in Australia.

• Wisr's strong loan origination growth, up 66% in the half to $170.8 million, and the recommencement of loan book growth after 18 months of decline are key indicators of potential revenue increase as the loan book continues to expand.
  
• The company's technology-driven automation and AI-powered decision engine, which now automates 78% of loan approvals and has achieved a 134% increase in verification process automation, are expected to enhance operational efficiency and contribute to improved net margins.
  
• Wisr's focus on expanding portfolio yield and net interest margin, which have grown to 11.2% and 5.75% respectively, alongside a reduction in net losses, indicates potential for enhanced profitability and earnings growth as these trends persist.
  
• The company is well-capitalized with substantial undrawn warehouse funding capacity, positioning it to support growth and scale operations, which could lead to increased earnings and financial stability.
  
• As consumer interest rates decrease and employment remains strong, Wisr anticipates a favorable environment for loan origination, which, combined with its targeted cost-to-income ratio improvements as the loan book approaches $1 billion, supports the potential for higher future profitability and earnings growth.

Wisr Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wisr's revenue will grow by 97.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -42.1% today to 1.2% in 3 years time.
• Analysts expect earnings to reach A$2.1 million (and earnings per share of A$-0.0) by about April 2028, up from A$-9.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 86.9x on those 2028 earnings, up from -4.7x today. This future PE is greater than the current PE for the AU Consumer Finance industry at 10.1x.
• Analysts expect the number of shares outstanding to grow by 1.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.4%, as per the Simply Wall St company report.

Wisr Future Earnings Per Share Growth

Risks

• A slight decrease in the loan book and revenue for the half suggests potential challenges in sustaining loan growth, which could affect future revenue generation.
  
• While operational efficiency is improving, a 6.3% increase in OpEx without a proportional increase in revenue during the half may pressure net margins if revenue growth does not pick up as anticipated.
  
• Despite positive EBITDA, ongoing reliance on external funding (e.g., warehouses) poses a risk to earnings if funding costs increase or access to cheaper capital becomes constrained.
  
• The heavy reliance on automation and technology-driven processes introduces execution risk; any failure or disruptions in the technology could impact loan processing efficiency and customer satisfaction, affecting revenue and margins.
  
• With a low market share in secured vehicle loans and personal loans, Wisr faces significant competitive pressures; failure to capture a substantial market share might impede earnings growth and scale.

Valuation

• The analysts have a consensus price target of A$0.09 for Wisr based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$0.12, and the most bearish reporting a price target of just A$0.06.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$168.1 million, earnings will come to A$2.1 million, and it would be trading on a PE ratio of 86.9x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of A$0.03, the analyst price target of A$0.09 is 65.6% 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.