The Offer

Company Overview

Beforepay Group Limited was founded in 2019. The company operates in the Pay on Demand industry, which is a relatively new concept and appears attractive to potential customers. This business model is witnessing significant growth as customers are looking for a more flexible and transparent approach to manage their personal finances. The company presently has over 125,500 active customers, who are diverse in terms of age, income, and industry of employment.

Source: Company Website

Key Highlights

• A Unique Business Model: Pay on Demand solutions, such as those offered by Beforepay, are a modern phenomenon in the consumer finance market, offering individuals an alternative to traditional methods of obtaining short-term financing.

Source: IPO Prospectus

• Sources & Uses of Funds:

Source: IPO Prospectus

• Scalable Business Model: Because the funds are delivered to consumers as cash in their bank accounts and can be used for any purpose, Beforepay's product has a wide range of applications. Since its commercial introduction in August 2020, the company's Active User base has grown rapidly to over 125,500 as of October 31, 2021, representing a small portion of the 5.3 million Australians aged 20-54 with no/limited savings who may be interested in the product.
• Solid Growth Reported in Number of Cash Outs: The number of Cash Outs in FY2021 amounted to 569,670, up from 8,826 in FY2020. Monthly Cash Outs grew from 5,537 in August 2020 to 99,088 in October 2021, representing a compound monthly growth rate of 22.9%. The expansion in Active Users has been the primary driver of this increase.

Number of Monthly Cash Outs Since August 2020:

Source: IPO Prospectus

• Strong Growth in Average Cash Out Amount: As a result of a growing share of recurring customers and changes in Cash Out limits granted to recurrent users, the average Cash Out amount climbed by 92.1% from AU$119 in August 2020 to AU$229 in October 2021.
  

Average Monthly Cash Out Amount Since August 2020 (AU$):

 Source: IPO Prospectus

• Monthly Default Rate has Narrowed Down Significantly: The Cash Out default rates in August 2021 reduced to under 3.60% from 12% in 1H FY2021, due to the tightening of eligibility criteria on Benefit Users.
  

Default Rate Vintages by Cohort:

 Source: IPO Prospectus

• Dividend Policy: The company currently does not intend to pay dividends as the business requires a lot of cash to fund its operations.

Financial Highlights

Source: IPO Prospectus

• Statutory income of the company grew substantially from AU$44,784 in FY2020 to AU$4,502,696 in FY2021.
• Other income amounted to AU$398,675 in FY2020 and AU$79,500 in FY2021. This figure included the recognition of an R&D tax incentive of AU$312,175 in FY2020. No such incentive was recorded in FY2021.
• The company's payment platform expenses in FY2021 amounted to AU$1,416,639, reflecting its commercial launch at scale in August 2020 and the subsequent increase in both Active Users and the number of Cash Outs in a month.
• As of June 30, 2021, Beforepay had gross customer receivables of AU$10,321,554.

Key Management Highlights

Source: IPO Prospectus

Risk Associated (High)

Investment in the IPO of "B4P" is exposed to a variety of risks such as:

• Growth Stage Company: Beforepay is a growth stage company with a history of losses. We expect the company to incur significant expenses and continuous losses for the foreseeable future.
• Unable to Access Funding: The company is exposed to funding risk as a fast-growing business. As a result, it is likely to require additional debt and equity capital in the future for its growth and to respond to business opportunities, challenges, or unforeseen events.
• Interest Rate Risk: As of now, the interest rate under the company's Credit Facility Agreement is fixed. However, the interest rates for its future facilities cannot be foreseen, and they may be calculated on a fixed or floating basis.
• Fraud Risk: There is an inherent risk that Beforepay's customers, employees or partners may seek to commit fraud against it or its customers.
• Default Risk: The company is also significantly exposed to credit default risk by the customers, which could substantially weigh the group's overall performance.

Conclusion

Beforepay is a relatively new business that was incorporated in June 2019 and commercially launched its product in August 2020. It has been operating at a loss since its incorporation. However, its "Pay on Demand" business model has been experiencing rapid growth as customers seek a more flexible and transparent way to manage their finances.

Furthermore, the company's ability to become profitable is contingent on its potential to maximize revenue by boosting Pay Advances by targeting additional users, significantly increasing the average Cash Out amount, reducing Cash Out defaults, and managing operating costs, including employee and advertising and marketing expenses. Beforepay might not be able to develop fast enough or keep defaults low enough to make an operating profit and become cash flow positive.

Therefore, given the lucrative business model, increasing Active User base, loss-making status, and vital risk metrics, the IPO of Beforepay Group Limited would be "Attractive' only for a High-Risk appetite investor.