Q: The company is an interesting profitable small cap. Looking at their income statement bad expense is a large component of total revenue. I believe they deal in giving smaller high risk loans. Is their business model sustainable and scalable ? If you like what would be good entry point ?
5i Research Answer:
PRL typically serves non-prime clients, so losses are part of its business and should be expected. The key is pricing its loans properly to allow for this. The business is scalable up to a point. It still requires somewhat of a personal touch, but there is a big market opportunity. The sustainability is perhaps less assured, simply because there is lots of competition and the business is very much tied to interest rates and the economy. In a big downturn, losses will likely increase, perhaps sharply. But it is executing very well now, and we like it generally in the $15 range.