Pioneer's growth opportunities and outlook for FY23 and beyond

Speaker 1:

Let's get to our small cap in focus. Pioneer is in the debt purchase space and it, I suppose, is looking in a way to put an end to debt stress. At least that's what it says. Keith John is the company's managing director and he joins us now live. Keith, welcome to the program. Thank you for joining us. Look, we've mentioned that you were at this Microcap Conference lately, so I'm always interested to know what kind of questions other investors are asking you.

Keith John:

Our business is a really interesting business at a really interesting time. Clearly the economy has some struggles ahead of it. Cost of living pressures are impacting on consumers. Our investors want to know and our shareholders want to know how is that impacting our business and what does that look like for the future? What's the opportunity for us and how do we navigate that opportunity in a really appropriate manner? By that I mean as a financial services provider and a provider of services back to the banks, how do we deal with consumers that are suffering debt stress and do that in a way that's good for them and also good for us? And that's where a lot of the focus is at the moment in our business.

Speaker 1:

Okay. That is sort of a reflection of what's going on in the broader economy as well. When it comes to the levers that you can pull to bolster the Pioneer business against some of those headwinds as well, we know that there's rising cost of funding. How are you controlling your funding costs in this environment?

Keith John:

For sure. Our funding costs are on the higher side at the moment than what they have been traditionally. We've bought them down in November last year and we're on a path now to bring them down again further. Those funding costs and the removal of the higher costs that we're paying at the moment, they drop straight to the bottom line. We're profitable now in FY '23 with a really good runway of profitability in the future. And as we deal with those funding costs further, that will open up the profitability of our business faster.

Speaker 1:

Where do you go for growth then, when you think about moving the company forward, Keith?

Keith John:

Yeah, the Australian market has really changed dramatically in our sector over the course of the last few years. The Hayne Royal Commission really changed the focus of banks from driving at an outcome that was financial, obviously, to looking after consumers better and getting better consumer outcomes. What that's meant for us is that there's been a lot of players leave the sector over the course of the last couple of years, some because they're uneconomic, others have gone out of business and some because of the compliance regulations and matters surrounding that. Really for Pioneer, we're in a ...

Speaker 1:

Oh, unfortunately our line looks like it is just frozen. We'll give it a minute, just a couple seconds to see if it decides to come back to life. But we are speaking with Keith John from Pioneer Credit, Managing Director. Keith, do you mind just picking that up there?

Keith John:

Sorry about that. Yeah, we were talking about the opportunity for Pioneer and what that looks like for us is really we're one of two predominant players in financial services in our sector. There hasn't been a lot of volume over the last couple of years because of the pandemic and because banks have been very, very cautious about customer treatment. We expect that to accelerate now off the back of A, the pandemic ending and also of course higher cost of living and those pressures. There's a lot of volume to come through to Pioneer over '23, '24 and beyond, and we think that will drive growth of our business significant.

Speaker 1:

Because you did raise capital from what I understand, I've just lost the date in all of my paperwork here. How are you going to drive that growth practically? I mean, you're not going to be needing any further cash injection, I wouldn't assume?

Keith John:

Look, no, we don't need any further cash. We raised about $21 million over the course of the last year, heavily supported by myself as the largest shareholder and our two other substantial shareholders through that journey. We did that at an average of about 57 and a half cents, and that enabled us to invest heavily in some portfolios. And last year we invested about a hundred million dollars, which is the most that we've ever invested back into portfolios and that's certainly driving the growth through '23. But '23 we're forecast an investment of $61 million. We're fully funded for that predominantly out of cash flow with the opportunity to extend that further through the year. But there's ample opportunity for us to grow and it's really about growing appropriately. And what that means for us is investing at the right price on the right customers so that we can service them properly to get appropriate outcomes for both the consumer, our vendor clients, the banks and us.

Speaker 1:

How is your cost out program going, Keith?

Keith John:

Yeah, look, I mean one of the challenges in a smaller business is obviously reaching scale is really important and it's also very expensive. Over the course of the last couple of years, compliance costs have risen dramatically in this business. The downside to that, of course, is the impact to the bottom line for the period that you go through that. The upside is the moat that it creates around our business and the protection it affords us from smaller players that might be looking to challenge. We're now at scale, we're now driving those sort of costs out of our business. Not so much around compliance, but certainly around the way we buy data and the way we deal with data, access to professional services and so forth. That's well advanced, it's going well. There's ample opportunity over the course of the next year or two as well to continue to drive that cost out of our business as we become more efficient.

Speaker 1:

And Keith, just you talking about data there made me think about cybersecurity because that has got to be front of mind for boardrooms right across the nation. I mean, we've been told for years that we need to get serious about it, but we've seen major corporations having these data breaches. Does that keep you up at night at all?

Keith John:

I'm not sure it keeps us up at night. We're certainly very alert to cyber and what that looks like. We have an exceptionally robust framework in place, probably much more significant than what most people would think of a business our size. Now we're 450 people with well over a hundred million dollars in revenue, but we've invested very heavily in cyber. A lot of that's been driven by APRA's requirements and push down to us through the banks, and this is part of the moat that I talk about creating around our business. The other part with us is we've been a slower adopter of technology in terms of dealing with our consumers. Dealing with them by SMS and by portals and so forth. And that's afforded us a level of protection that probably wasn't thought about a couple of years ago, but certainly there. But look, it's a regular agenda item amongst our executive and of course amongst our board just like it is with every other business and something we're alert to.

Speaker 1:

Yeah, it's an interesting. I think we've got to talk more about it with even smaller companies as well. You mentioned Keith, that you've got a lot of skin in the game, you know? You own a lot of shares yourself. The share price has been underperforming, so what do you think's going to be the catalyst to really turn that around?

Keith John:

Yeah, I think there's a few things. I mean, the first of all is the general market sentiment. I don't think necessarily our stock has being sold off as opposed to essentially a buyer's strike. Lack of liquidity obviously impacts small caps and micro-caps more than it does the large-caps, and that's one of the challenges. The second for us is we have our AGM coming up on the 2nd of November. We'll provide guidance at that stage, and I think once we start providing some more guidance and hitting that guidance obviously, that will be a catalyst for a re-rate of our stock. We don't think it'll take much from here. We've got a very, very good business. We've had tremendous growth over the course of the first quarter of this year. We'll start talking to that more specifically at the AGM. And we think investors will start coming back on board in a manner that supports this business and rewards the growth and the profitability of it very soon.