Release Date: February 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PEXA Group Ltd (ASX:PXA, Financial) reported a 16% increase in revenue to $163 million for the first half of FY 2024.
- Operating EBITDA increased by 12% to $59 million, driven by the strength of the PEXA Exchange.
- The PEXA Exchange business maintained a strong market position, handling almost 90% of all property transactions in Australia.
- Customer satisfaction for the PEXA Exchange remains high at 93%, supported by API integrations that enhance customer experience.
- The PEXA U.K. business is making progress, with two top 10 banks verbally committed to the PEXA platform and successful completion of a 36-hour remortgage transaction by Shawbrook Bank.
Negative Points
- PEXA Digital Growth business is still operating at a loss, with an operating loss of about $6 million over the half.
- Optima Legal in the U.K. experienced a decline in market share, partly due to a technology incident with Capita.
- Specified items, including restructuring and acquisition costs, impacted NPATA, with a pretax impact of $15.4 million.
- The U.K. market remains challenging, with recessionary conditions affecting remortgage and sale and purchase transaction volumes.
- Despite progress, the integration of Optima Legal and Smoove into the PEXA Group is ongoing and expected to take until the end of FY '25.
Q & A Highlights
Q: Can you provide a framework on how you're thinking about opportunities in the U.K. and improving business performance?
A: Scott Butterworth, Chief Financial and Growth Officer: There are two parts: business performance and capital approaches. For business performance, we focus on improving Optima Legal, which has underperformed due to lower volumes and market conditions. Smoove has narrowed its losses through cost management and product improvements. We are cautious about further investments until we see more revenue. We have also received intriguing inbound interest regarding our assets, which we will explore further.
Q: Why didn't you move the Exchange margin range up given the strong performance?
A: Glenn King, CEO: We are pleased with the first half margin, but we remain cautious due to economic concerns, ongoing efficiency improvements, and regulatory requirements. We need to ensure we deliver on all stakeholder requirements before adjusting the margin range.
Q: Can you explain why Optima Legal lost market share and how you plan to achieve breakeven in the U.K.?
A: Scott Butterworth, CFO: The market share loss was primarily due to the Capita technology incident. We have seen some improvement in instructions and have won a major U.K. bank contract. We aim to claw back more share and improve performance through better customer relationships and productivity improvements.
Q: What is the timeline for onboarding U.K. banks and seeing transaction volumes?
A: Glenn King, CEO: We are in discussions with two major banks, working through technical and financial details. We aim to complete these by midyear and expect to see increased transaction volumes in the second half of the calendar year. The integration of Optima Legal into PEXA's tech should be well advanced by midyear.
Q: How should we think about penetration in the Exchange business for WA and Queensland?
A: Glenn King, CEO: In WA, we expect to see growth up to another 10% of transactions due to the WA Duty Hub. In Queensland, further digitization and removal of checks should lead to growth over the next 12 months, depending on government agency readiness.
Q: Can you provide a breakdown of Smoove's revenue and gross profit margins?
A: Scott Butterworth, CFO: While we can't provide detailed competitive intelligence, the gross profit margin on the attachments business is significantly better than on the remo and sale and purchase business.
Q: How do you view the macro environment for the Exchange business in Australia?
A: Scott Butterworth, CFO: We see improvement since the third quarter of '23, but transfer volumes in NSW and Victoria remain below previous peaks. We are cautious about extrapolating from current trends due to economic headwinds.
Q: When can we expect Digital Growth to be EPS positive and specified items to reduce?
A: Scott Butterworth, CFO: We aim to scale Digital Growth to around $50 million in revenue through organic and inorganic means. Specified items should reduce over the next 1-2 years as earn-out arrangements and restructuring costs taper off.
Q: What is the status of the insurance claim related to the Capita incident?
A: Scott Butterworth, CFO: We expect to recover more in the second half. We have put in a claim and are working with our insurance company to expedite the process.
Q: How confident are you in engaging with the remaining U.K. banks in your pipeline?
A: Glenn King, CEO: We are confident in our unique position and expect the two major banks' transactions to trigger interest from other banks. We aim to create a sense of urgency among banks to adopt our platform.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
