Business

Purple Group CEO Charles Savage discusses year-end results

[ad_1]

SIMON BROWN: I’m chatting now with Charles Savage, CEO of Purple Group. Disclaimer up front – I hold shares in Purple. Results for the year-end August saw revenue up 33.8%; profit before fair-value adjustments and tax up 52.2%. Headline earnings, however, [were] down 74.3% and active clients up just over 50%, at just over 763 000.

Charles, morning. I appreciate the morning time. An important year perhaps for Purple, for a number of reasons. One of them is sort of the first bear market for your clients. I’ve got to say, with respect, they’ve held on fairly well. Since 2014 this was the first time that we’ve actually seen a bear market since EasyEquities first came on. It’s always going to be, I suppose, curious as to how clients will respond, how it’s going to impact them. Are they going to flee?

Charles, the first bear market – but not for you. You’ve been around a bit longer. It’s the first bear market for EasyEquities since starting in 2014. And on the data the clients did [well].

CHARLES SAVAGE: Yes, they did a great job. If you think, we haven’t had a recession or a kind of bear market since we launched EasyEquities, so this is the first real test of this customer cohort in terms of their resilience in tough markets.

They pitched up and they kept adding money to their investments, and we onboarded as many customers in the last 12 months as we did in the previous 12 months. So we’re very proud of their resilience and persistence towards investing goals.

SIMON BROWN: What struck me is [that] the return for your average client was down in the previous year. But they gave a positive return, which is staggering because the market is down and I’m fairly sure most professional fund managers have not done positive returns and it shows that private investors can do it.

CHARLES SAVAGE: Yes, exactly. The theme for the entire eight years that we’ve been around is that these private investors find themselves in the top kind of quarter of professional investors, if not even higher. So these guys are doing exceptionally well with their money. It comes out of the simple fact that about 60% of their assets sit in ETFs, [they] are well diversified, and then they’re taking high-conviction investments into 10 or 20 stocks that they’ve got an affinity or relationship to, or an understanding of.

SIMON BROWN: Yes. And that pretty much expects describes my portfolio. I mentioned up front that revenue is up at profits, Heps [headline earnings per share] was down. There are a lot of moving parts in the results, and you’ve been buying or increasing stakes, EasyProperty, EC10 [bundle], Rise – almost in a sense a bit of a consolidation of the businesses where you had stakes, and are now upping those stakes…

CHARLES SAVAGE: Yes. It was a busy year. We’re a small group, which I don’t think people give us credit for. There were there less than 150 of us and we did four acquisitions. So we consolidated, as you say, all of the subsidiaries, plus we bought Cloud Atlas [Investing], so that we’ve got ambitions to enter the asset space…..3:13. We still onboarded 250 000 customers and that creates quite a lot of work for the team. And we opened up an office in the Philippines to prepare for a Southeast Asia launch.

So we spend a lot of time on these financials to try and unpack all of the moving parts of the business and specifically to give clear, transparent access to the value drivers in the group, so that people could come to their own conclusions easily about what they think the future looks like. We’re obviously super excited about the future, and we think this was a great year in the context of global financial markets, and we’re set up for a wonderful 2023.

SIMON BROWN: You mentioned cohorts up front, and cohorts is essentially you would bucket people into the year that they arrived, so the people who signed up in 2014, and then 2015. Then you can track them over their journey through EasyEquities. It helps you understand what, for example, the cohorts of 2020 and 2021 are. The short answer is that, as they spend longer in EasyEquities, the clients get more confident and they get better at it, their portfolios grow and you make better profits off them.

CHARLES SAVAGE: That’s exactly right. It all comes down to the fact that at the start of your journey you know less. And as you grow your confidence, so your assets grow. If you think about the age group of our customers as well, they’re starting at an age of around 25. So their earnings potential is also increasing very fast. You would imagine that if at 25 you only managed to put away R10 000, by the time you get to 32, seven years later, you’re probably putting away R20 000 or R30 000 a year. So there are a whole lot of factors at play around these customer codes. But I think the most significant insight is all of them turn profitable in either year two or year three.

The real magic is we’ve got 500 000 customers that onboarded in the last two years that are not yet profitable. If you look at the customer cohorts, the minimum level of profit that we’ve achieved per customer cohort is R200 per customer per year. So we’ve got an opportunity to convert these 500 000 customers into profitable customers over the next few years, and we are doing it in two ways. One is obviously they’re increasing their contributions every year, and two, we’re increasing the number of products and services, so that’ll help drive Arpu [average revenue per user].

And then the second factor is we’re constantly bringing down the cost to serve this customer group. As we do it, it becomes easier for us to achieve profits, but it also makes all of our customer cohorts more profitable.

So I’m really looking forward to, if you like, proving the market wrong on this customer cohort group and making a profit out of them in the next two years.

SIMON BROWN: And a back-of-a-matchbox number there as you’re talking, those half a million folks, if they’re R200 a person, that’s a hundred million coming into your revenue in the next year or so.

CHARLES SAVAGE: A hundred million in profits.

SIMON BROWN: Sorry, profits – my bad. That’s quite important.

CHARLES SAVAGE: That’s a really conservative estimate because, as I said, that’s our least profitable customer cohort. So over the next two years I’m pretty confident we’ll get to those kind of levels of profitability from those customers. But [I’m] really excited about two new products that we are launching in the next six months being EasyCredits, which is securitised credit against your portfolio. And then EasyProtect Life, which is life insurance built for investors. Simon, as you’ll know, those are much higher-margin products and so they will considerably add to our Arpu and profitability.

SIMON BROWN: We’ve talked about this, and you’ve made no bones that this is the strategy here. Part of it is you added Capitec a while ago. You’ve brought in Discovery and, and Telkom and others in this year, but it’s rolling out that suite of offerings to now your 763 000 active clients.

CHARLES SAVAGE: Exactly.

And it’s about delivering products that they ask us for, not ones that we design in boardrooms.

And fundamentally it’s about achieving two things. One is putting products in front of our customers that help them create wealth. And then the other side of the coin is what products can we put in front of them that help them protect their wealth? The runway for products and services is enormous. We’ve only delved [into] investment services. There’s just so much more for us to do in the years ahead.

SIMON BROWN: You mentioned cost per client – that’s been edging down at R173. Part of that I imagine is economics of scale. I suppose part of it as well is, truthfully, you and your team [are] just getting smarter at it. Does that number keep on coming down?

CHARLES SAVAGE: Yes. Last year was our worst year in terms of coming down. That went down only 16%. In previous years we’ve come down on average around 25%. But this year we made a couple of significant investments which are in that cost base that didn’t provide an economic return. One was setting up the Philippines office, which is now 15 people, and then all of the infrastructure to support our entry to Southeast Asia. So that’s hosting and servers and all of that stuff.

The second one is we started to build these two new product sets, which takes time, money and effort.

The third one is we anticipate onboarding a significant amount of customers very quickly in the Philippines. Because of that we’ve had to create excess capacity in our systems, sort of waiting for customers to arrive, which is outside of the ordinary capacity, because our partner in the Philippines is very significant and we’re pretty confident that we’ll onboard at least 150 000 customers close to launch date when we launch that partnership.

SIMON BROWN: Do you have an ETF for the launch date? I know you put out a Sens and you said that you didn’t want to give too much detail. [Is there] sort of an idea of when that will be going live?

CHARLES SAVAGE: We are waiting for regulatory approval of our acquisition of Cloud Atlas. I think they meet once a month to do the approvals. So in November hopefully we’ll get the approval, and if we do it’ll take us about two months to launch our first ETF post the approval. My gut feel is we’re not going to get the approval this year. It’s probably going to be early next year, and then two months later.

So in the first quarter of next year we’ll [probably] be launching with our first EasyETF, which will be an active portfolio.

SIMON BROWN: And the Philippines – a go-live date for that?

CHARLES SAVAGE: Again, interestingly, also awaiting regulatory approval. Just how long is a piece of string? We’ve had three regulatory meetings and we are lining up for the fourth one. I think the team underestimated the regulatory oversight, which means that we face delays. But, having said that, we love a regulator that engages and ensures that everything’s in place. So once we go live that’s a tick in the box and we’ll be ready to go. So I don’t know. It could be any week, but at the same time it could be in a few months’ time.

I think the worst-case scenario will be the first quarter of next year, but we’re still quite positive about a launch this year and we’ll get feedback to the market in the next couple of weeks if that’s going to happen.

SIMON BROWN: I take your point, regulators are important. We need to engage them and it’s good when they engage us.

GT247.com which sort of was the core of Purple for a long time, and then of course when EasyEquities came along, [there was] a fundamental ground change. GT made a profit this year, made a good profit. But that profit is volatile. Does it get to a point where it’s almost consistently profitable, because it is very much swings and roundabouts?

CHARLES SAVAGE: Yes, it’s like having a binary option in the group, and it’s either zero or one. But it is like that. If you look at it historically, what’s interesting about it Simon, is that over 10 years it produces seven good years, and then three average or poor years. It is 22 years old, so has quite a long history of profitability. That’s what you can expect from it. You can expect seven out of 10 years that will look like last year, and then three out of 10 years where it’s poor. And really it suffers in market conditions where everything’s just trending quietly away. So it does benefit from markets that are more volatile and [from] swings both ways. If you look at the last 12 months, that’s exactly what we’ve had, whereas the previous year [when] it performed poorly was one of those trending up markets; everything went in the same direction. No real action for traders.

So volatility is a big driver for economic improvement in GT247, and typically seven out 10 years are good ones.

SIMON BROWN: I suppose seven out of 10 isn’t bad. I thought it close to five out of 10, but seven out of 10 means that over that period you’re actually making some profit.

We’ll leave that there. That’s Charles Savage, CEO of Purple Group, chatting on their results.

Listen to the full MoneywebNOW podcast every weekday morning here.

[ad_2]
Source link

Related Articles