Comments on GetBucks Financial Services Interim results (GBFS.zw)
Market Cap = ZWL 9 bn
= USD 58 m
GetBucks is a microfinance bank operating in Zimbabwe. It is the equivalent of a meme stock in Zim. It’s a fan favorite of ZSE retail apes.
You don’t have to be a financial analyst to see that it is overvalued. But hey, value is anything that people agree on, isn't it? If we collectively agree that GetBucks is worth USD 58m, then it is. If we agree that GetBucks is worth half of FBC Holdings, so be it.
On the interim results:
the company is making losses
no dividends were declared
revenue growth was mute
Inflation-adjusted revenue growth of 161% is not really real growth because the adjustment is based on the official stats, not the true stats.
The slow growth can be excused for the difficult 6 months, everyone gets that bad day in the office hey. The underlying thesis here is that GetBucks is NOT a Value stock, and is NOT a growth stock either.
It is difficult to establish that there was explosive revenue growth across the last 5 years, due to different currency regimes and reporting issues (a mess created by RBZ). In that case, we cannot claim that there is blitzscaling happening there...i.e we cannot prove it.
Thus, GetBucks is essentially a momentum stock, a meme stock, detached from fundamentals. We can look into the business model, to introspect the possibility of hyper-growth. Maybe if we look deeper we can see opportunities for high growth.
Business Model Issues
GetBucks "provides unsecured loan products and educational loans to low-income earners employed in the formal sector". This is undoubtedly needed in Zim. However, the space is congested, there are a lot of players (all sorts of MFIs), shadow banks and loan sharks, etc.
Profitable clients upstream are cherry-picked by the big banks (Stanbic and Stanchart). Clients downstream are unprofitable, beyond hope, because two demons (RBZ and Legal Framework) hinder the development of products that suit downstream clients in a profitable way.
You have to pay attention to:
Unsecured Loan Products
Low-income earners
Formal Sector
The formal sector is dwindling, it’s not growing, all eyes are on the SSB, you can’t look anywhere else. Pathetic, despite all the economic growth & surplus chants.
Unsecured Loan products = High risk.
This means tighter risk management practices to curb growth...you cant grow recklessly in this space.
Poor risk management practices = sudden death.
The sudden death story has played out over and over again in and outside Zimbabwe.
Low-income earners = high interest
……. but also very high risk, and reduced stability. As with any payday loans where the interest is high, the client is trapped, AND, eventually ends up defaulting. The repeat business, recurring revenue, etc. is only for a short while.
These sustainability issues regarding revenue, and high risk in an unfriendly regulatory environment, etc. thwart any chances of quality high growth for GetBucks. The business model itself is pregnant with issues that need careful navigation.
There are some positives though, for example, the reporting. These fellas are not trying to hide anything, like what some fellas do, using boilerplate language. Of note is the honesty of reflecting a loss on investment properties and increasing employees.
Capitalization Issues
GetBucks needs to merge with some other MFI URGENTLY. I have extensively touted the need for mergers and consolidations in the financial sector. GetBucks has a capitalization problem here. It needs to raise USD 2.8m to be compliant by Dec 2021.
Currently, they have USD2.2m. If they raise capital via a rights issue, it dilutes current owners heavily. You own 50% less. Where are they going to get the capital? Failure to meet the threshold can result in the cancellation of the license. This is where a merger comes in.
There are plenty of players in the MFI space facing the same problem. A merger with a firm that has USD2m capital would result in the group only needing to raise USD800k new money. A merger doesn't solve dilution but it avoids being closed down.
IF GetBucks fails to raise new capital and gets closed down, the value of the shares can easily go to zero....you lose all of your money. Being shut down is not unthinkable in Zim, anything is possible. My bet, however, is the regulator will be lenient, extended deadline.
Because these issues are serious high-level going concern issues (business model, capitalization), it depletes the energy one can exert in analyzing the actual financial numbers coming through. I am not as excited as everyone about this stock.
It’s a fin-meme stock. I would buy it just to ride momentum, but the trick with momentum is you never know when it reverses and goes the opposite way. I honestly wish that GetBucks would succeed and disrupt the financial services sector in Zim, but it’s not an easy road.
A lot of variables are fighting against GetBucks, it has little chance of succeeding. If the company ventures outside Zim, it will have a very high chance of being successful at whatever they are doing. For now, it’s way overvalued, beyond imagination.
Lofty Heights.
Ciao