Thursday, November 30th, 2017
Australians are often characterised as being coffee and food snobs, with the stereotypes coming to a peak last year when millennials were accused of indulging in ‘smashed avo’ as opposed to saving for their first homes. Leaving the generational banter to the side, annual figures of Australians spending at cafes, restaurants and take-away definitively confirms the trend of Australians spending more of their disposable incomes on eating out. The reasons posited for this trend range from the increase in dual-income households, millennials being less versed in cooking and younger generations generally preferring to spend their money on ‘experiences’ as opposed to assets. With the surge in demand for chai lattes and deconstructed sandwiches, the number of smaller cafes and restaurants opening (as well as the related distributors that deliver their food goods) has also rapidly grown. Opening one of these establishments, however, requires substantial capital to sink into appliances, fittings and/or vehicles.
Figure 1. Australian’s spending on ‘eating out’
Axsesstoday Group is a company that has identified this market thematic, seeing a gap between the demand and supply for hospitality related finance as the sector’s growth continued to outpace GDP. The company was founded in 2012 by the Meydan Group, a family owned investment company out of Melbourne with several hundred million of assets under management. It was created to provide finance to small businesses for commercial equipment in the hospitality and transport industries, by establishing relationships with select retailers and creating a distribution network to offer finance to its customers. It was not until late 2016 when the company listed on the ASX, at which time they had grown their loan receivables book from zero to over $52m in just four years. This rapid growth of the receivables book has continued for the company since listing, growing a further $116m to $168m in the last 12 months. In the group’s hospitality segment, the main assets it tends to finance include coffee machines, display units as well as cooking, refrigeration and dishwashing equipment. For its transport segment, the main assets financed are second-hand trucks, trailers, forklifts and other light trade vehicles. In terms of its exposures to both of these segments, it is essentially a 50/50 split between the two, with the transport book being a few percent larger. In terms of customers, however, the hospitality segment provides loans to over 4,500 and the transport division to over 1,100 customers.
Figure 2. Axsess’s Hospitality and Transport Loan Books
Source: Company Reports
The company’s most recent result was positive, reporting its full year results to the market at the end of August. Although coming off a small base, earnings growth looks to be strong, as does the company’s operational momentum. NPAT soared 157% from the PCP to $3.6m, while loan receivables were up 226% over the year to $167m. As with all financing companies, growing your loan book at a rapid pace is not always the hardest part, it is ensuring that bad-debts remain low and thus revenue grows in tandem with the increasing book size. Pleasingly, this has been the case for Axsess with both its hospitality and transport book’s revenues growing in line with their net loans. This strong result lead management to announce the company’s maiden dividend of 2.2cps, fully franked, in line with management’s guidance of distributing 50% of after tax profits.
With the strong structural tailwinds set to continue into the near future, we believe AXL is well placed to continue to grow its business. Our FY18 valuation, derived partly from management guidance as well as our view on the sector, suggest the company should experience another solid year with profit set to almost double. On current projections, we have a FY18 value of $2.05 for AXL and believe it is well placed to perform strongly over the coming years.