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Credit Update – Pioneer

Matthew Macreadie

Pioneer reported FY22 results yesterday.

The good:

  • One-off costs which have hindered the company’s financial statements now seem to be past them. For the first time in some years, Pioneer will present a clean set of financials in FY23, without any significant one-off expenses.
  • Liquidations were up 13% on pcp to AUD106.8m and PDP investment of AUD99.5m is the largest annual PDP investment in the company’s history. The company also secured a 5 year forward low agreement with CBA.
  • EBITDA was up 11% on pcp to AUD60.6m with net revenue up 2% on pcp to AUD54.3m. Pleasingly, the cost to service the portfolio was down to 44%.
  • The performing arrangement (PA) portfolio grew 23% yoy translating into a 5-year CAGR of 16%. PA portfolio now AUD464m of paying receivables and ~AUD1.5bn of PDP inventory for servicing. PDP assets in total (at amortised cost) sit at AUD295.5m (up 19% on pcp).
  • Pioneer has AUD289.6m of facilities, with AUD26.3m headroom available for PDP growth
  • There is significantly less competition in the market which places Pioneer on a good footing for growth. The recent appointment of administrators to Collection House, is likely to lead to reduce competition for PDPs.

The bad:

  • The company reported a net loss after tax of AUD33.1m which included one-off, non-cash expenses.
  • Leverage remains high. While the deleveraging programme is continuing, debt (or borrowings on BS) to assets remains at 75.6% (FY21: 74.4%). Pioneer made a comment that Pioneer’s leverage does remain below peers in the liquidation space.
  • Australian households are experiencing cost of living pressures – implications on the PDP portfolio and further impairments.

What to watch over the next 12 months:

  • Pioneer has refinanced its senior facility (November 2021) to reduce funding costs (alongside a +AUD40m facility upsize in March 2022). The company has also raised AUD21m in equity capital.
  • Pioneer’s cost to service dropped during FY22 and should improve further over FY23.
  • Pioneer is one of only two scale players in the Australian PDP space. A reducing in funding costs and cost to service should help the company enhance its earnings/cashflow over FY23.
  • Risks remain in terms of execution and Australian households are experiencing cost of living pressures – implications on the PDP portfolio and further impairments.
  • Bonds are trading at distressed levels due to the high leverage (albeit the net assets per share of 60.6c is materially higher than the current share price) and lack of conviction around management’s execution over 2022/2023. For investors who believe in the fundamental turnaround story, the MTNs offer an attractive mid-double digit returns on a yield to maturity (YTM) basis.