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L.O. Spotlight: BB Finance, Kredo, Monego, Mozipo
20/09/2019

L.O. Spotlight: BB Finance, Kredo, Monego, Mozipo

My thoughts about these four originators, and whether they justify their Mintos Rating

People always ask me for recommendations on loan originators. Starting today, I will occasionally publish my thoughts about a random group of originators that have caught my attention.

Note: This isn’t an in-depth TORCH evaluation, just an overview of my personal sentiments. The originators mentioned in this post are active on Mintos; I’m not sure if they also seek financing on other platforms.

You are welcome to read these other resources as well:
Mintos Review
Mintos transparency and risk evaluation (TORCH report)
– My latest portfolio update, including bonus sign-up links

BB Finance

Established in 2006 and ranked A-, BB Finance is considered one of the most stable originators on Mintos… but I never liked their offerings. Reinforced by their strong image, they allow themselves to offer low interest rates to investors, at around 8% (even while the market was at 15%).

This would have been acceptable if their loans were low-risk. But in reality, they charge borrowers up to 292% APR (as opposed to the 50% declared on their loan originator page). This is an insanely high interest rate, especially for a country like Finland (unlike Kosovo and Albania). Unsurprisingly, their late loan ratio is slightly worse than category average.

Now you’re thinking: “With buyback-guaranteed loans, you aren’t actually betting on the borrower but on the originator!” That’s mostly correct. But is BB Finance as stable as Mintos considers it to be?

Between 2017 and 2018, BB Finance reported a growth in assets from €15.6m to €17m, but their bottom line dropped from a profit of €760k to a loss of €1.1m. After reading their disappointing annual report (pdf), I moved on to their 2019 investor presentation (pdf), expecting an explanation for the poor performance. Instead I found this:

Something felt wrong about this chart – like the green trend line was used to cover something up. Let’s turn on our bullshit filter to make sure:

Yes, their portfolio has in fact gotten smaller in 2019. Let’s look only at annual change:

(in millions of Euros)

Here we can see that 2018 was also a slow year for BB Finance. But what if we take a step further and look at exponential change – growth relative to last year’s size?

(percentage of change relative to previous year)

This is really bad: Now we can see that their rate of growth already dropped in 2017. I don’t know about you, but to me it seems like BB Finance is a company on the decline, which deserves a serious rating downgrade. Combined with low interest rates, I just don’t see a reason to invest in their loans.


Kredo and Monego

Operating in Albania and Kosovo, these two Balkan originators are linked to one another, as well as to Mintos. While I have criticised the centralised ownership on Mintos, and the lack of clarity regarding the connections with and among originators, I don’t actually see what negative impact this has on investors. In fact, I feel that originators tied to Mintos are less likely to bail on investors (this is just speculation), and also tend to grow faster – probably due to a strong starting position thanks to funding from Mintos’s rich sponsors.

Kredo and Monego are excellent examples of this. Established in 2017 and 2018 respectively, both originators have since skyrocketed, with €34.6m and €32.4m funded loan volume. Despite offering high-risk loans, both originators exhibit better loan performance than the Mintos average, with over 85% current loans. On top of that, they also offer higher interest rates to investors than market average.

Both originators are ranked C+ due to their short track record and the fact that they have not yet reached profitability, but assuming no catastrophes, I foresee that both companies will reach profitability within the next two years and get a rating upgrade. Currently, I allocate a larger share of my portfolio to them than to other originators with a similar Mintos rating.


Mozipo Group

Founded in Lithuania in 2007, the company has since expanded into Denmark and Romania (as well as Poland, but those loans aren’t on Mintos). Given their respectable track record, Mozipo Group’s B- rating seems pretty low… until you look at their financial statement (pdf).

The statement distinguishes the Lithuanian entity Moment Credit from the two Mozipo subsidiaries (combined), so I’ll do the same.

Moment Credit has grown both its assets and income between 2017 and 2018, gaining a net profit of €365k. However, this growth was driven by “financing activities”, while the company’s own interest income has barely changed. In other words, this part of Mozipo Group is profitable, but isn’t really growing.

As for the other Mozipo subsidiaries – they grew their assets, but also doubled their losses from -€1.1m in 2017 to -€2.5m in 2018. Their revenue has slightly decreased, and they hold negative equity.

It’s common for new subsidiaries to struggle with profitability, but these two were established in 2015 – not so new anymore – and their level of loss seems completely unsustainable compared to Moment Credit’s profit. The three legal entities share the same group guarantee, which means that the weakest link might break the entire chain.

To make matters worse, Mozipo Group has a terrible tendency to publish its annual statements late – this year, on Sep 20th instead of May 30th(!). Apart from being hugely unprofessional, such delays make it harder for investors – and for Mintos – to gauge the current status of this originator.

I would expect Mintos to downgrade Mozipo’s rating, and personally, I won’t be buying any more of their loans until they get a grip on their losses or cancel the group guarantee.


In other news: I’m still working on Envestio’s TORCH report, which will include a special addition. Stay tuned!

This post is not meant as investment counselling. I am just a fellow investor sharing his thoughts and personal experiences.

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