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The finance provider has announced an $18.9-million capital raise to fund a new trade finance product for SMEs.
Earlypay – the secured invoice financing and equipment financing provider for small-to-medium enterprises (SMEs) – has announced an expanded SME product range, which will be funded by an $18.86-million institutional placement.
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Thew new trade finance product – which will support SME clients in purchasing inventory and enhance the management of working capital – has been developed and trialled by Earlypay over the last 12 months, the finance provider said.
It explained that when the clients sell the final product to their customers, the loan will convert to the finance provider’s established invoice finance product.
The new trade product will support client retention, increase revenue and margin from existing clients, and enhance Earlypay’s competitive market position for new business, Earlypay said.
It said in an ASX announcement that the demand for the product has exhausted its balance sheet capacity and the funds from the latest placement would allow Earlypay to grow the product without funding constraints.
Earlypay, which said it has been funding the trade finance product on its balance sheet throughout the trial, will continue to fund it on balance sheet until it establishes an anticipated new $50-million warehouse facility in the near term to further support the expansion of the trade finance and invoice finance products.
The new warehouse facility is expected to commence in three months, at which time Earlypay will move its trade finance clients into the warehouse, it said.
It added that once the proposed warehouse facility is complete, it expects the majority of cash to be released back onto the balance sheet.
This will release cash that will be used to repay remaining expensive bonds (current balance of around $20 million at 8 per cent interest), optimise warehouse funding structures, and/or explore potential acquisition opportunities, according to the finance provider.
Earlypay has received commitments to raise the $18.86 million via a placement of new fully paid ordinary shares to new and existing institutional and professional investors.
The finance provider said that it is expecting the net proceeds of the capital raised to be fully deployed within the next three months, after which it is expecting to generate a pre-tax return of 20 per cent on the capital raised, which would be earning accretive.
The institutional placement will result in the issue of 44,897,846 shares at an issue price of $0.42, representing a 12.5 per cent discount to the last close price on 21 June 2021 of $0.48, and a 10.5 per cent discount to the 30-day volume weighted average price of $0.47, according to the fintech finance provider.
Shares issued under the institutional placement will rank equally with existing shares on issue, and are expected to be allotted on 1 July 2021, according to the ASX announcement.
Earlypay said that the institutional placement was conducted using the company’s available placement capacity pursuant to ASX Listing Rule 7.1A, and therefore does not require shareholder approval.
Henslow Pty Ltd and Morgans Corporate Ltd acted as joint lead managers to the raise, the finance provider added.
Commenting on the new trade finance product and capital raise, Earlypay CEO Daniel Riley said: “New initiatives are well advanced and include expansion of trade finance and broader promotion of equipment finance.
“The new initiatives leverage existing staff and technology capability and have the potential to contribute substantially to top-line growth during FY22 and beyond with little corresponding cost.”
Mr Riley added that the company has reconfirmed its 2021 financial year guidance of net profit after tax and amortisation (NPATA) of over $8.5 million, and added that it is expecting a “material improvement” in FY22 as previously noted.
He said that based on the current run rate of $2.2 billion of transaction volume and with an expectation of margins normalising to FY20 levels and a stable equipment finance book, it would expect NPATA of around $12 million in FY22, before the net returns that it expects on the new trade finance product.
Additionally, he said that Earlypay is well positioned for growth above current run rate lending volumes, with $100 million of headroom in existing invoice and equipment finance facilities, and a strong pipeline of new business.
“Earlypay has continued its strong momentum in calendar year 2021, with our new trade finance product garnering significant demand from new and existing clients,” Mr Riley said.
“Importantly, we expect the capital raise and product expansion to be earnings accretive in FY22.
“The performance of the new trade finance product, combined with our record business lending volumes in established products, has provided strong validation for the board to endorse a capital raising to support the new business pipeline while a proposed $50-million warehouse facility to support the trade finance product is established.”
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