Mogo Inc

Mogo Inc (TSX: MOGO) is a Canadian based financial technology company. It offers a finance application to consumers with solutions which help them to control their financial health. The company offers solutions that help users to monitor their credit score, protect themselves from identity fraud, control their spending, and borrow responsibly.

Key Highlights:

• The group reported strong growth in the daily new member additions. Current daily new member additions grew 130% over the daily average in Q2FY20, aided by the continued expansion of Mogo’s member base which was recorded at more than one million members during the end of the Q2FY20.
• The company is planning to launch a mobile peer-to-peer payment solution which would help the users to make payments through Mogo’s mobile app. The above feature is expected launched during the first quarter of FY21.
• MOGO has collaborated with EQ Bank, the digital banking platform offered by Equitable Bank, through which Mogo will offer access to EQ Bank’s Savings Plus Account to Mogo members through the Mogo app

Q2FY20 Financial Highlights: MOGO announced its quarterly results, wherein the company posted a decline in the top line, due to a shrink in income from both the segments. The decline was also fueled by the exit of Liquid business in Q3FY19 along with discontinuation of the bitcoin mining operation, which resulted in a lower subscription and services revenues. Total revenue stood at CAD 10.559 million, as compared to CAD 14.867 million in the previous corresponding period (pcp). The company reported gross profit at CAD 9.572 million, as compared to CAD 10.372 million in pcp. Total operating expenses stood significantly lower at CAD 7.638 million, compared to CAD 11.926 million in pcp. Income from operations stood at CAD 1.934 million, as compared to a loss from operations of CAD 1.554 million in Q2FY19. The company reported a net loss of CAD 1.550 million, as compared to a net profit of CAD 6.401 million in Q2FY19. The difference was due to a Gain from the acquisition amounting to CAD 13.3 million in Q2FY19.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company might face a default risk considering the current challenging environment. Further, the company has a significant amount of debt in its balance sheet, which might pose a challenge in the adverse time.

Stock Recommendation: The stock gained ~37% and ~16% in the last three months and six months, respectively. The company has enhanced its product presence through collaboration with leading names and through product innovation, which has led to higher product penetration. During early 2020, the company has collaborated with goeasy, a leading non-prime consumer lender in Canada, which would lead  Mogo to monetize its lending platform and drive new recurring fee-based revenue, with no capital investment or credit risk from these loans, which is impressive. The company mentioned that it was focusing on creating a leaner, more efficient cost structure which would allow it to significantly increase the operating cash flow. These initiatives helped in driving a material and better-than-expected sequential improvement in net cash generated from operating and investing activities, as well as the solid Adjusted EBITDA in the current quarter. With the increase in higher digital marketing and user’s growth, we believe the company would witness improved business prospects in the near term. On the valuation front, the stock is trading at forward EV/EBITDA multiple of 6x as compared to industry (professional & commercial services) median of 10x. However, the group has a significant amount of debt in its balance sheet, which is alarming. The group’s long-term debt to capital ratio stood at 106.6%, which is significantly higher than the industry median of 32.4%. The higher debt component put the balance sheet at risk and might pose a challenge in the adverse time. Hence, considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 2.15 on September 16, 2020.

MOGO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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