October 14, 2021 - Today, Propel priced its offering at a price of $9.75 per share - the top range of expectations. The company is expected to raise ~$61M and anticipates to begin trading on the TSX Index, Wednesday October 20 under the symbol "PRL". 

The company had a very narrow price range to begin with, so there won't be too much change from our mid-range calculations from a few weeks ago. In total, the company will have 34,325,120 shares outstanding, assuming the over-allotment is exercised in full. 

This gives the company a market cap of approximately $335M and values the company at 3.52 times revenue, 33.5 times earnings and 11.9 times EBITDA. While this is more expensive than Canadian alternative lenders, as discussed last time it is not a perfect comparison. Since this is a US Pureplay that is listing on the TSX while alt-lenders like GSY and EQB have the majority if not all their operations in Canada. 

In the US, companies in the Financial Services Sector and Credit Industry are trading at 6.3 times revenue and 36.8 times earnings. If you use that as a comparator, than Propel looks pretty good here. 

Overall, I'd say Propel is fairly valued - in this market, that is a good thing. Could make for some decent upside given the company's near term target is to deliver 100% CAGR in terms of combined loan and advance balances. One to watch. 

October 5, 2021 - It looks like the pace of IPOs is starting to ramp up. First up, let's take a look at Propel Holdings which last week, filed to list on the TSX Index. The company is looking raise $60M and price its offering between $9.25 and $9.75 per share under the symbol "PRL". 

Propel is a fintech company that operates as an alternative lender. It allows access to credit to "over 60 million underserved American customers who struggle to access credit from mainstream credit providers". This is the very definition of an alternative lender and for those invested in goeasy (TSX:GSY) it may sound familiar. 

It may also provide somewhat of an ethical dilemma for some investors who have a hard time with what some may refer to as predatory practices. 

At first glance, the numbers look pretty impressive. Here is a snap shot of their business which is growing and profitable:

Over the past few years, Propel has growth revenue and adjusted EBITDA margins by a CAGR of 20% and 114% respectively. While we aren't as familiar with the US market, the Canadian market is underserved which is one of the main reasons why goeasy has been so successful. Given Propel's growth rate, it appears to be a similar scenario south of the border.

According to the prospectus, 6% of US households are unbanked and 18.7% of household are underbanked. These customers are usually shut out of traditional lending options. This makes for a pretty significant addressable market.

The company offers two types of loans - Installment Loans (6-18 months fixed term loans with a fixed repayment schedule) and Lines of Credit. Propel operates under two brands MoneyKey and CreditFresh.

MoneyKey serves consumers with a higher credit risk and has an average loan range is between $200-$2,000. The brand generates $3,383 in average net income and as an effective APR (annualize cost of billing cycle) of 175-298%. As for CreditFresh, it focuses on customers with a better credit score with a high loan range $500-$3,500 and it generates $4,219 Average net income. Its APR is in the 88-190% range.

In comparison, those with higher risk profiles are typically subject to APRs north of 300% via other alternate lenders or even if within the traditional banking system. Interestingly, they also point to data that supports what goeasy has being saying throughout the pandemic which is that lower credit borrowers actually do quite well in a recession or economic downturns. 

The company's path to growth is through gaining market share in regions in which it operates and to expand within other US states. It aims to have a presence in 29 states by the end of 2021. Here is the company's short terms targets:

Overall, the company looks to be quite interesting with multiple avenues for growth.

Upon the completion of the offering, Propel will have 34,397,195 common shares outstanding - that is assuming the over-allotment is exercised in full. That will give it a market cap between $318M and $335M. At the mid-range, this gives it a P/E and P/S ratio of 32.65 and 3.43 respectively.

Worth noting, this is more expensive than Canadian alternative lenders such as goeasy which is trading at 14 times earnings and 4 times sales. Goeasy's EBITDA margins (56%) are also double that of short term targets for Propel. 

It will be interesting to see how this one plays out given the fact operations are in the US, but it chose to list on the TSX Index. This makes valuation comparison between US and CAD stocks very difficult as we are not comparing apples to apples. 

I like what I am seeing out of the company, but when Canadian alternative lenders like goeasy and bull list pick Equitable Group (TSX:EQB) are trading at such cheap discounts in comparison, it is hard to make the argument to buy into Propel instead. The main argument here, is diversification south of the border as this is a US pureplay, so it could be a nice complement to the Canadian alt lenders.