Small business lender Prospa in the red with $58m credit loss provision

Small business lender Prospa in the red with $58m credit loss provision

Prospa co-founders Beau Bertoli (left) and Greg Moshal (right).

Small business lender Prospa (ASX: PGL) managed to lift its revenue considerably in FY23, but that growth has been overshadowed by an increase in economic credit loss (ECL) provisions to reflect a more challenging environment for some customers.

The Sydney-based company, founded in 2012 by Beau Bortoli and Greg Moshal, has reported a total non-cash ECL provision of $58 million, representing an increase to 12.7 per cent of closing gross loans. This compares to 9.4 per cent in FY22.

The group reports nearly 60 per cent of that increase relates to 'incremental macroeconomic overlay'. If it weren't for this provision, EBITDA would have likely been steady year-on-year at $29 million, but instead Prospa is looking at a $29 million loss.

Prospa is also reporting a $25 million impairment of all software intangible assets.

Revenue was up 61 per cent year-on-year in FY23 at $286 million, while in the last quarter the increase year-on-year was less pronounced but still significant at 40 per cent, generating $75 million.

The company has also had a major uplift of 31 per cent in its secured funding facilities, reaching $921 million by 30 June this year, of which $140 million was undrawn.

Prospa co-founder and CEO Greg Moshal emphasises the company continues to provide balanced lending support to small businesses in the current economic environment.

"Final quarter FY23 originations were pleasing despite the tighter credit risk settings implemented in response to the rapid changes within the broader economy throughout the second half," he says.

"Our portfolio yield remains steady; however, losses were higher as certain small businesses experienced heightened cost pressures, changes in consumer demands and weakening revenue. While seeing steady demand through all channels, we proactively manage our credit risk assessment policies.

"We are working closely with our partners and existing customers as economic conditions evolve in Australia and New Zealand, offering support where appropriate to target a sustainable and performing portfolio."

Prospa chief financial officer Ross Aucutt says the lender has ended the year with a "sound" underlying cash net profit after tax (NPAT) result during challenging economic conditions.

"We are focused on our risk settings with regular reviews over the past nine months, and we will continue to monitor and adjust as appropriate. Despite this, we have continued to invest in our product and technology platforms, which we see as essential in differentiating us from our competitors," says Aucutt.

"We focused on reducing our expense base during the quarter whilst strengthening our capital management position by entering into a corporate debt facility, enhancing our cash generation and management capabilities and maintaining strong funding capacity."

PGL shares are down 13.43 per cent at 29 cents per share (CPS) at the time of writing, and have fallen in half since the start of the year when they were trading at 58cps.

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