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Zaim Credit Systems eyes higher profitability as it turns cash positive


What it does

Zaim Credit Systems PLC (LON:ZAIM) styles itself as a micro-finance/fintech company; however, it’s actually a payday loan business.

Not only that, it’s a Russian payday loans business.

Zaim has 300,000 customers who borrow an average of GBP95 for 20-25 days and they’ll use the service two or three times per year, paying 1% in interest per day.

Almost 100 stores

Currently, customers can call into one of 97 Zaim stores in the greater Moscow area and receive a loan decision in seven minutes. The cash is paid directly to a Mastercard. The service also operates online and on the phone.

Zaim’s credit rating system, meanwhile, means the delinquency rate is less than 10%.

The company is the ‘micro-finance’ leader in western Russia and ranks 15th in the country.

Growing market

The market itself is growing at a fair clip. In 2018 the volume of loans grew by 35% to GBP1.9bn.

Analysts reckon that figure represents a fraction of Russia’s micro-finance potential.

Driving this expansion is a banking sector that underserves working families who sometimes require short-term finance to meet unexpected calls on the household budget.

Zaim has been around since 2011.

How it is doing

In a trading update for its third quarter, Zaim said it generated positive operating cash flow of GBP149,000 compared to negative cash flow in the previous quarter of GBP178,000, which the board believes demonstrates that the growth of amounts funded is “healthy, solid and self-sustaining”, which gives the group “good confidence” in the long-term sustainability of its strategy.

The amount funded in the third quarter rose to GBP2.31mln from GBP1.62mln in the preceding quarter and GBP2.28mln in the same quarter of last year.

In early November, the company said the coronavirus pandemic has accelerated the migration of its business model to online, resulting in a positive impact on margins.

In an update on the online operations of its Zaim-Express subsidiary, the group said the online element now represents the largest portion of the group’s business. The shift to a more flexible and scalable online operation represents the successful delivery and execution of the revised strategy, resulting in significant growth from a low online base at the time of the group’s flotation last year.

Zaim added that the launch of its mobile app, which is expected to increase repeat customers and grow target market penetration, is scheduled for the first half of next year.

What the boss says: Siro Cicconi, chief executive

“We are pleased to announce that the company has achieved its first relevant milestone: our online platform comprising the most significant part of the business for the first time in the group’s history. The business is currently trading profitably, cash-flow positive and its growth pace is solid and consistent driven by the online segment. This is the confirmation of positive trends we observed in the previous quarters and I am glad to note that these results go beyond our expectations,”

“All key performance indicators show positive trends: double-digit monthly growth rates in amounts funded comes along with a decrease in the weighted average default rate, profit generation and positive cash-flow generation.”

“My outlook on the business is still prudent, because of the uncertainty caused by the second wave of Covid-19, but it is fundamentally positive in light of the above-mentioned achievements.”


What the analysts say

In late November 2020, analysts at Italian research group ValueTrack said Zaim is set for a rapid increase in profitability now that it has passed net even breaking point.

Covid-19 has driven the microfinance business online and accelerated Russian “digitalisation” says ValueTrack.

While the impact of COVID-19 means the microfinance market will remain stable year-on-year in 2020, online expansion will grow the business at an annual rate of 20-25% in 2021E-22E, said the note.

Zaim’s online loans represented 59% of the portfolio in September 2020 compared to just 3% in October 2019 and this repositioning should drive further improvements going forward, says ValueTrack.

A net loss of GBP0.3mn in 2020 this year should swing to a profit of GBP2.7mln in 2021 and GBP7.8mln in 2022E, says ValueTrack, which has a fair value estimate of 6.75p per share against 6.5p previously.

Inflexion points

  • Mobile growth gathers pace as coronavirus affects in-store business
  • Continued positive cash generation
  • Loan book increases and the company expands geographically

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