Keith joins Stocks Down Under to talk about our unique approach to debt recovery

00:00:09:09 - 00:00:26:22
Stuart Roberts
Hello and welcome to Stocks Down Under. My name is Stuart Roberts and I'm one of the co-founders of our service. And joining me from Perth on Tuesday, the 4th of April 2023, is Mr. Keith John, who's the founder and CEO of Pioneer Credit ASX PNC. Keith, good afternoon.

00:00:26:23 - 00:00:28:16
Keith John
Hi Stuart, thanks for hosting me.

00:00:29:00 - 00:00:53:10
Stuart Roberts
Yes, Keith, I first heard your story in Melbourne at a conference you were presenting at down there and I came away pretty excited. You are the only serious competitor out there to the mighty Credit Corp in terms of buying busted debts from from the banks and then collecting on those debts and then gradually building a decent business out of it of buying low and selling high.

00:00:53:10 - 00:00:55:03
Stuart Roberts
Is that a good summary of what you do?

00:00:56:16 - 00:01:20:11
Keith John
Look, certainly we do compete with Credit Corp and we are their most serious competitor. Look, it's a summary. We'd hope that they're not all busted accounts. And certainly the the very bulk of our business are people that are suffering some form of hardship as opposed to terminal decline. But that's a nice way to tie it all together.

00:01:20:14 - 00:01:40:19
Stuart Roberts
Right. What's great about you is the relationship that you then form with your with your new debtors, where you work in a collaborative fashion with them, work out a payment plan. Those folks then are able to, in many cases, pay off the debts in full or according to the payment plan you've worked out.

00:01:41:01 - 00:02:00:07
Stuart Roberts
There's a minimum of antagonism between both parties. And this is the amazing thing. You check how they think about you over time and you gradually getting a high Net Promoter Score from people who are your money. The major banks never get that but little Pioneer Credit over in Perth gets a favourable rating for the people who owe it money.

00:02:01:14 - 00:02:26:00
Keith John
Yeah it's true. It's a unique way of approaching this business. But certainly what we do is we buy impaired credit principally off the banks. We've got really high standards so we think about that as our origination. So how do we originate? What do we pay is really important. We don't buy payday loans, for example.

00:02:26:00 - 00:02:41:14
Keith John
There's none of that in our business. We're looking for consumers that can get ahead and might have suffered a life event, Stuart. So typically what we see in the economy is the banks are out there lending money. They do a really good job of it and they do a really good job of lending you the right amount for you.

00:02:41:22 - 00:03:06:24
Keith John
These events cause short term shocks to your cash flow and that's very much with the people we end up with. So over the course of our journey we've invested about 700 million AUD into these portfolios from the banks across some 400,000 consumers. We currently have a portfolio of about 250,000 consumers that owe us about 2 billion AUD.

00:03:07:10 - 00:03:27:15
Keith John
And and of that 2 billion AUD, about a quarter of it about 500 million AUD are on payment arrangements. So these are customers that are paying us back weekly, fortnightly or monthly in a manner that suits them. And then we've got a heap of other customers we work with. But if we look after those customers well, then we'll get a great net promoter score.

00:03:27:15 - 00:03:36:03
Keith John
And that's why the banks choose to deal with us, because they know we do a great job of looking after people going through these life shocks, these life events.

00:03:36:10 - 00:04:07:07
Stuart Roberts
Right. Now, interestingly, you've then created a net present value based on that roughly half a billion AUD or so that you can collect. It's a little over 300 million AUD, that's roughly similar to the amount that you've borrowed to sustain that book and you capped it only $40 million AUD or thereabouts. So if you're anywhere as good at collecting money as you've been over the course of that journey, there's a few hundred million dollars in upside set to come to the shareholders of Pioneer Credit.

00:04:07:23 - 00:04:30:02
Keith John
Yeah. And that 500 odd is, you know, hopefully we can do much better than that because the size of the opportunity at a static level as it is today is about $2 billion AUD. But certainly we expect to do you know, we expect to do very, very well. We've done very well for a long period of time.

00:04:30:22 - 00:04:46:23
Keith John
Our market cap doesn't reflect, in my view, the true value of this business and how well we've operationalised it. And, you know, we're working very hard to realise that value for shareholders over the next few periods.

00:04:46:23 - 00:05:12:12
Stuart Roberts
So coming into these next few periods, it's fair to say that business is good for you. We're probably going to see more of these life events that you're talking about in a declining economic, slightly declining economic environment. More debt ledgers is therefore going to be offered to you by the banks. So there's a chance to actually grow that 2 billion to something more than 2 billion as you recycle the collected capital that you've got.

00:05:13:02 - 00:05:40:03
Keith John
Yeah, absolutely. So very, very true. I mean, macroeconomic environment is really good for us in the sense that there's you know, there's inflationary pressures, there's a bit of nervousness in the economy and so forth. And that means there are more defaults rolling through. But on the other side, and this is really unusual, you know, we're going into this environment of rising inflation, rising interest rates.

00:05:40:03 - 00:06:07:03
Keith John
We're in it now. Some talk of a recession, whether we get there or not. Let's see. But uniquely, we've got full employment. Absolutely. And our customers need to be employed to pay us. And which is what they are. So that's really good for us in our business. And almost none of our customers have exposure to the housing market, so they haven't been directly impacted by the cost of their mortgages going up.

00:06:07:03 - 00:06:26:01
Keith John
They're impacted by the cost of living, which is much less prevalent, obviously, than the cost of a mortgage rise. And, of course, by these life events that beset everyone, I mean, they're great people. They're good people. They want to get ahead. They're just like you and I when they go home at night, I think, how can I get ahead?

00:06:26:01 - 00:06:46:06
Keith John
How going to pay my bills if I've got a mortgage, how do I pay it quicker? No one's thinking about how do I get out of it? They're thinking about how do I get ahead sooner? And and they're great people to work with. They just need someone that understands them and can give them the relief, the time or the support they need to get back on track.

00:06:46:06 - 00:06:47:20
Keith John
And that's what we're really good at.

00:06:48:02 - 00:07:06:15
Stuart Roberts
Right. So you've built a great culture within Pioneer, which genuinely cares for the folks that you're working with. And operationally, it's fair to say that you haven't missed a beat. The accounting standards dealt you a bit of a blow four years ago, and that's part of the reason why the stock is so undervalued. Summarise it, if you can.

00:07:06:15 - 00:07:10:11
Stuart Roberts
What happened in 2019 and how you fought your way back from there?

00:07:11:01 - 00:07:35:07
Keith John
Yeah, for sure. Look, we'd always used tier one auditors. We had PWC as our auditors, we took advice from them with respect to how we value our assets. And they summarily changed their mind in 2019. And that started this on a bit of a precipitous journey that resulted in a terminated scheme of arrangement in 2020.

00:07:35:07 - 00:08:00:06
Keith John
Pioneer terminated it. It wasn't in the best interests of shareholders once COVID hit, and we've been working our way through that. So at a corporate level, we've had some challenges. We're now paying a lot more for our debt, our corporate debt than we had historically. We've got the opportunity to bring that down materially later on this year, and we're working on that now and expect that to be very good for shareholders.

00:08:00:17 - 00:08:31:06
Keith John
But operationally, we haven't missed a beat and that's been incredibly important and is a great testament to the people that run that part of our business that there been supporting customers and continuing to grow our performance and certainly over the course of the last 12 months in particular, we've seen that come to the fore. We've invested an incredible amount of money into new portfolios, well over $150 million AUD in the last 12 or so months.

00:08:31:06 - 00:09:02:10
Keith John
And and we're seeing great returns from that now into our business. So our cash collections, which is our gross performance, the amount of money that people pay us is up some 40% for the first half on the on the prior corresponding period. EBITDA was up, you know many multiples of what it was before as was EBIT and they're very good results for us and certainly point to a very good future which we're very excited about.

00:09:02:19 - 00:09:21:03
Stuart Roberts
Now Keith, you've got about 18% fully diluted of this, of this company. You've participated in the last couple of capital raisings and just recently you've been buying on market. So there's a lot of skin in the game from you aligning yourself to a turnaround. I'm very impressed as well with your leadership team.

00:09:21:08 - 00:09:27:24
Stuart Roberts
There's no short term incentives. It's all long term incentives over the period of time that would take to collect from some of these ledges that you've bought.

00:09:28:14 - 00:09:52:11
Keith John
Yeah. Stuart in our business, we buy these ledges and generally speaking, we get our money back in sort of 18 to 24 months and we get the majority of the value of those ledges over the course of 4 to 6 years. So it seems ludicrous to me and to my team that you would get a short term incentive based on performance, because performance happens over a decent period.

00:09:52:18 - 00:10:14:01
Keith John
So in our business, if you're a leader in this business or an executive, there are no short term incentives. You get rights and those rights vest over 4 to 6 years. So if you do a really good job, then in a few years time, that'll be worth a lot of money. And if we do the wrong, you know, a poor job, then clearly you won't make any money.

00:10:14:06 - 00:10:35:00
Keith John
So you know where everyone in this business is completely aligned to shareholders. And I think that's a critical thing in small financials. You have to have deep alignment to shareholders because we're co-investing money together. It's just that you're trusting me to do it for you. And that's a great privilege and a great responsibility.

00:10:35:00 - 00:10:43:08
Keith John
And I think it needs you need to have solid alignment. And that's certainly what we've worked hard on here and what we what we have.

00:10:44:02 - 00:10:59:07
Stuart Roberts
Right. Well done how you've come back from the events of 2019. Well done on the most recent result, not a bad effort where you've got good cash collections are up 40% and good luck in terms of completing that refinancing before 2023 is out.

00:11:00:05 - 00:11:04:02
Keith John
Appreciate it. Thanks to you and I appreciate your wishes and your interest.

00:11:04:14 - 00:11:25:16
Stuart Roberts
Thanks for joining us at Stocks Down Under.