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Shares in Prospa (ASX: PGL) have plummeted this morning after the small business lender announced 2019 earnings would be well below its prospectus forecast.
Five months ago before the company's IPO it was expecting EBITDA of $10.6 million for the year, but that has today been slashed to $4 million.
Meanwhile, revenue is expected to be down 8 per cent on the prospectus forecast at $143.8 million.
The market responded negatively to the update with PGL shares down 26.3 per cent to $2.84 at 11:10am AEDT.
On a more positive note, Prospa forecasts originations will be up 2.7 per cent on what the board thought prior to the IPO. This is a key indicator as the company has historically observed a lag of 12-18 months between the origination of a loan and loss outcomes.
"Our business continues to grow and evolve. While we are experiencing some short term impacts on our forecasts, we're confident we have the right growth strategies to deliver long term shareholder value and solve the funding challenges of small business owners across Australia and New Zealand," says Prospa co-founder and joint CEO Greg Moshal.
The lender, which was recently named by LinkedIn as one of Australia's top 25 startups for the seoncd year running, attributes the variance to its premiumisation strategy exceeding the forecast.
"Originations are growing. Portfolio premiumisation means a higher quality loan book and lower rates and longer average terms for our customers," says Moshal.
"Early loss indicators continue to improve and we expect to continue to invest in new products, sales and marketing."
The group believes lending to all credit grades will continue to grow with increased appetite for its solutions from premium credit quality customers.
The company hopes its revenue shortfall will be offset by reductions in loan impairment expense and funding costs, with the net interest margin after losses set to be down $2.3 million on prospectus levels.
Overall, operating costs will likely be 4.7 per cent lower than expected pre-IPO.
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