➢ Peak Fintech Group (OTC:PKKFF) operates a lending platform in China that matches lending institutions and borrowers and earns a fee of between one and four percent of the value of those loans. It targets primarily small and micro businesses. Much of what it does involves financing inventory and as a result it has great visibility, in some cases going out months, and lots of repeat business.
➢ Since its launch in 2018, it has grown to a $65 million revenue run rate and we expect it could reach $90 million in annual revenues this year. Despite the pandemic, Peak reported revenue growth of 265% in 2020, while its losses to common shareholders increased to $1.9 million from losses of $1.3 million on a non-GAAP basis. It reached and surpassed its target $40 million in revenues, but fell short of its original $4 million EBITDA target.
➢ In February it filed to list on NASDAQ and shareholders authorized a reverse split of between 2:1 and 5:1 at the discretion of the board.
➢ It recently closed deals with a large Chinese electronics wholesale distributor (Beijing Dianjing Company aka BDC) and packaged foods wholesale distributor Beijing Jingying Corporate Management Ltd, both of whom can add a large volume of transactions to Peak’s platform. Customers of these two entities can use its platform to match with lenders for funding inventory purchases.
➢ Peak plans to launch its lending platform in Canada by the end of the year giving customers of both countries the ability to finance trade, while allowing Peak to generate Canadian currency with which to pay royalties.
➢ Compared to its fintech peers who trade at an average of 12.6 times enterprise value to 2021 estimated revenues, Peak is currently trading at an enterprise value US$352 million or only 4.8 times EV/sales using a 2021 revenue estimate of US$73.1 million. With a longer track record and more visibility we believe Peak will be able to trade closer to its peers and given its growth should be a much more valuable company next year.
Peak Fintech finished the year strong and with significant activity in Q4 to indicate that 2021 should be a stellar year. It added huge new customers and new city centers that should reap high volumes once new customers are onboarded. Despite growing 276% in Q4, Peak Fintech’s Q4 revenues fell short of our overly optimistic forecasts going into the typically strong fourth quarter. The company still beat its goal of reaching over $40 million in sales for the year by reporting $42 million, up 259%. It reported negative EBITDA for the year of $1.9 million versus a positive $1.5 million in 2019. The company was down to $3.3 million in cash (including the bank’s cash) as of April 30, 2021 but with less than $300,000 in debt as of December 31, 2020. The current capital raise of up to $15 million should alleviate the cash crunch.
For 2021 we are leaving the revenue estimate at $90 million until we get further insight from management after leaving the quiet period after the financing. This number is predicated on the company getting a cash infusion to fund working capital, some of which will be achieved with its current capital raise and some through the exercise of warrants and options. We expect significant revenue growth from Peak’s joint venture with BDC and the referral program from Beijing Jingying that was only signed in November. Those two will contribute in Q1 2021 lessening seasonality but hampered by unlimited cash to fund working capital.
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