Mr. Amazing Loans Corporation (OTCQB: MRAL) – Loan Arrangement with IEC
Fundamental Research Corp has issued a report entitled “ Mr. Amazing Loans Corporation (OTCQB: MRAL) – Loan Arrangement with IEC ” and dated July 12, 2018. The full report is now at www.researchfrc.com .
Siddharth Rajeev, B.Tech, MBA, CFA
July 12, 2018
2018 Fundamental Research Corp.
“15+ Years of Bringing Undiscovered Investment Oppo
rtunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK O
F THIS REPORT
Mr. Amazing Loans Corporation (OTCQB: MRAL) – Loan
Arrangement with IEC
Sector/Industry: Consumer Finance
https:/
/ir.mramazingloans.com/
Market Data (as of July 12, 2018)
Current Price
US$0.23
Fair Value
US$0.35
Rating*
HOLD
Risk*
4
52 Week Range
US$0.1
8
–
US$
1
.19
Shares O/S
17,463,449
Market Cap
US
$
4.
02
M
Current Yield
N/A
P/E (forward)
N/A
P/B
1.6x
YoY Return
-
72.0
%
YoY OTC
2.8
%
*see back of report for rating and risk definitions
*All the figures are in US$ unless otherwise specif
ied.
Highlights
The company recently changed its name to Mr. Amazin
g
Loans Corporation.
MRAL is currently doing little to no advertising to
reduce
loan originations and related loan processing costs
in 2018.
As a result, as of March 31, 2018, the net loans re
ceivables
dropped by 8% QoQ to $4.54 million.
MRAL reported $0.39 million in revenues in Q1-2018,
down 16% YoY.
The operating costs increased 48% YoY in Q1-2018 to
$1.44 million due to a significant increase in sala
ries, wages
and G&A expenses. MRAL has announced plans to reduc
e
costs. The company has to significantly lower opera
ting
costs or increase revenues to reach profitability.
Realized loan losses (loans charged-off) in Q1-2018
were
5.1% of the loans outstanding, and continue to be v
ery high.
We are lowering our rating from BUY to HOLD and wil
l
revisit our recommendation when we have more clarit
y on
the company’s future direction.
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Corporate
Update
Portfolio
Update
On March 14, 2018, MRAL announced the launch of Inv
estment Evolution Coin Ltd.
(“IEC”) - a Singapore based company majority owned
by Paul Mathieson, CEO / Chairman
and sole director of MRAL. The initial objective of
IEC is to launch a new cryptocurrency to
facilitate remittances to the Philippines by overse
as foreign workers. IEC entered into a
consulting agreement with Silicon Valley based Hash
cash Consultants to implement and
launch its new IEC cryptocurrency. The target launc
h date has yet to be announced.
In June 2018, the company announced that IEC has ag
reed to loan the company up to $20
million at 12% p.a. for a 5 year term. As IEC is a
privately held company, we do not have
enough information to comment on IEC’s ability to p
rovide such large loans to the company.
In June 2018, the company also issued 360,000 Serie
s H preferred shares to IEC at $1 per
share. IEC has the right to convert each preferred
share to 50 common shares. This implies
that IEC basically received MRAL common shares for
a price of $0.02 per share compared
to today’s price of $0.23 per share. We consider th
is an extremely dilutive transaction for
MRAL’s existing shareholders. When asked, managemen
t informed us that these shares were
issued to IEC as one of the conditions for IEC to p
rovide the unsecured $20 million loan
facility.
IEG’s primary focus remains on borrowers with credi
t scores between 600 and 700 as shown
in chart below. This category accounted for 87.1% o
f the portfolio at the end of Q1-2018,
versus 86.3% at the end of 2017. A decline in the m
ix of borrowers with credit score over
700 (from 14.6% at the end of 2016, to 12.1% at the
end of 2017, to 11.4% at the end of Q1-
2018), we believe, indicates a slight shift to a ri
skier borrower profile. However, this was
partially offset by the decline in loans to consume
rs with credit score lower than 600, from
2.6% at the end of 2016, to 1.5% at the end of Q1-2
018.
Source: Company Data
The average duration has dropped YoY. Loans with te
rms over 2 years accounted for 86% of
the portfolio at the end of 2017, versus 99% at the
end of 2016. A lower duration typically
Page 3
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Financial
Performance
lowers portfolio risk.
Source: Company Data
The average loan size was $3,860 at the end of 2017
versus $4,258 at the end of 2016.
The company is planning to restrict advertising cos
ts to reduce loan originations and
related loan processing costs in 2018.
The following is a summary of the income statements
.
Source: Company Data
IEG reported $0.39 million in revenues in Q1-2018,
down 16% YoY.
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Source: Company Data
Operating costs increased 48% YoY in Q1-2018 to $1.
44 million due to a significant
increase in salaries, wages and G&A expenses.
We believe the company has to
significantly lower operating costs to reach profit
ability. In order to lower operating costs,
the CEO has voluntarily reduced his salary from $1.
2 million to $0.60 million, with no
option to receive a bonus.
IEG reported a net loss of $1.04 million (EPS: -$0.
06) in Q1-
2018, versus $0.50 million (EPS: -$0.05) in Q1-2017
.
The following table shows the key line items in the
income statements as a percentage of the
average loan receivables. Revenues as percentage of
loan receivables were 26.65% p.a. in
Q1-2018 versus 24.67% in 2017.
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*Note that the above calculations may not be preci
se as they are based on the average of the loans ou
tstanding at the
beginning and end of a period.
Source: Company Data / FRC
As of March 31, 2018, the company had $4.54 million
in loans receivables, net of the
provision for losses, down 8% QoQ. The company had
$1.14 million in the provision for
credit losses, or 20% of the loans receivable. The
allowance was also 20% at the end of 2017.
Loan Loss and Provision
Source: Company Data / FRC
Realized loan losses (loans charged-off) were $0.30
million in Q1-2018 (5.1% of the loans
outstanding). We consider these loss rates to be ve
ry high as the delinquency rate on
consumer loans and credit cards is between 2.0% and
2.5% p.a. in the U.S., according to the
U.S. Federal Reserve
.
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Balance Sheet
The following table shows that, as of March 31, 201
8, approximately $0.33 million, or 5.7%
of loans, were delinquent (60+ days past due). This
figure was 6.7% at the end of 2017.
Loans become eligible for the lender to take legal
action at 60 days past due.
Loans Past Due
Source: Company Data
At the end of Q1-2018, the company had $0.36 millio
n in cash, and no debt. The following
table shows a summary of the balance sheet.
Source: Company Data
Cash from financings have totaled $25.8 million sin
ce 2012. In the same period, cash spent
on operations were $17.3 million, and $8.3 million
on investing.
Source: Company Data
Our projections are based on a 2018 year-end net po
rtfolio size estimate of $4 million
(previous estimate - $7.5 million), and 2019 year-e
nd net portfolio size estimate of $6
million (previous estimate - $10 million).
We estimate revenues of $1.58 million in 2018,
versus our previous estimate of $2.01 million, and
$1.77 million in 2019, versus our previous
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Valuation
Risk
estimate of $2.64 million.
Our net loss estimate in 2018 is $3.12 million (EPS
: -$0.16) versus our previous estimate of
$2.84 million (EPS: -$0.11), as we lowered our reve
nue forecast. Our net loss estimate for
2019 is $3.38 million (EPS: -$0.14) versus our prev
ious forecast of $2.40 million (EPS: -
$0.08).
Based on an average P/B ratio of 2.5x for U.S. base
d lenders, we estimate the fair value of
IEG’s shares is $0.35 per share versus our previous
estimate of $0.80 per share. Our revised
fair value accounts for potential share dilution fr
om the recently issued preferred shares. We
are lowering our rating on MRAL’s shares to HOLD, a
nd will revisit our recommendation
when we have more clarity on the company’s future d
irection. Note that continued losses of
20%+ are not sustainable.
We believe the company is exposed to the following
key risks:
Consumer finance lending is a highly competitive ma
rket. Although we believe the
U.S. consumer credit market is healthy, unfavorable
macroeconomic changes may
impact consumer finance lenders and their ability t
o grow.
The company’s ability to consistently originate goo
d quality loans at attractive yields
is critical.
Loan loss rates have to be maintained at reasonable
levels.
The company’s ability to grow depends heavily on ma
nagement’s ability to raise
capital (equity and debt).
IEG has only one director at this time.
IEG has been generating losses and has yet to gener
ate profits.
Approximately 360,000 preferred shares were recentl
y issued, which can be
converted to 18 million common shares. Conversion w
ill result in an over 100%
increase in the number of shares outstanding.
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2018 Fundamental Research Corp.
“15+ Years of Bringing Undiscovered Investment Oppo
rtunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK O
F THIS REPORT
APPENDIX
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2018 Fundamental Research Corp.
“15+ Years of Bringing Undiscovered Investment Oppo
rtunities to the Forefront”
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F THIS REPORT
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2018 Fundamental Research Corp.
“15+ Years of Bringing Undiscovered Investment Oppo
rtunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK O
F THIS REPORT
Page 11
2018 Fundamental Research Corp.
“15+ Years of Bringing Undiscovered Investment Oppo
rtunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK O
F THIS REPORT
Fundamental Research Corp. Equity Rating Scale:
Buy
– Annual expected rate of return exceeds 12% or th
e expected return is commensurate with risk
Hold
– Annual expected rate of return is between 5% and
12%
Sell
– Annual expected rate of return is below 5% or th
e expected return is not commensurate with risk
Suspended or Rating N/A—
Coverage and ratings suspended until more informati
on can be obtained from the company regarding recen
t events.
Fundamental Research Corp. Risk Rating Scale:
1 (Low Risk) -
The company operates in an industry where it has a
strong position (for example a monopoly, high mark
et share etc.) or operates in a regulated industry.
The future outlook is stable or positive for the in
dustry. The company generates positive free cash f
low and has a history of profitability. The capita
l structure is
conservative with little or no debt.
2 (Below Average Risk) -
The company operates in an industry where the fund
amentals and outlook are positive. The industry an
d company are relatively less sensitive
to systematic risk than companies with a Risk Ratin
g of 3. The company has a history of profitability
and has demonstrated its ability to generate posit
ive free cash
flows (though current free cash flow may be negativ
e due to capital investment). The company’s capita
l structure is conservative with little to modest u
se of debt.
3 (Average Risk) -
The company operates in an industry that has averag
e sensitivity to systematic risk. The industry may
be cyclical. Profits and cash flow are sensitive
to economic factors although the company has demons
trated its ability to generate positive earnings an
d cash flow. Debt use is in line with industry ave
rages, and
coverage ratios are sufficient.
4 (Speculative) -
The company has little or no history of generating
earnings or cash flow. Debt use is higher. These
companies may be in start-up mode or in a
turnaround situation. These companies should be co
nsidered speculative.
5 (Highly Speculative) -
The company has no history of generating earnings o
r cash flow. They may operate in a new industry wi
th new, and unproven products.
Products may be at the development stage, testing,
or seeking regulatory approval. These companies ma
y run into liquidity issues, and may rely on extern
al funding.
These stocks are considered highly speculative.
Disclaimers and Disclosure
The opinions expressed in this report are the true
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stry. Any “forward looking statements” are our be
st estimates and
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vailable and that we believe to be correct, but we
have not independently verified with respect to tru
th or co
rrectness.
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ialize. Actual results will likely vary. The an
alyst and Fundamental Research Corp. “FRC” does no
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