Elevate Credit IPO: Consider A Modest Allocation, Despite Uncertain Environment

| About: Elevate Credit (ELVT)

Summary

Based in Fort Worth, Texas, ELVT provides online credit solutions to non-prime consumers.

ELVT is set to price its NYSE IPO this Thurs., 1.21; lead underwriters are Jefferies LLC, Stifel, and UBS.

We have concerns about the IPO market following last week's postponement of SCCI; similar lending companies LC and ONDK have sold off significantly since their IPOs.

However, ELVT's being the first major tech IPO of 2016 could bring significant attention; we suggest a modest allocation.

ELVT could set the stage for a series of tech IPOs in 2016.

Elevate Credit Incorporated (Pending:ELVT) expects to raise $76.9 million (if the underwriters' option to purchase additional shares is exercised in full) in its upcoming IPO. Based in Fort Worth, Texas, Elevate Credit is a company that provides online credit solutions to non-prime consumers.

We previewed ELVT's IPO last week on our IPO Insights platform.

ELVT will offer 3.6 million shares at an expected price range of $20 to $22. If the underwriters price the IPO at the mid-point of that range, ELVT will have a market capitalization of $708 million.

ELVT filed for the IPO on November 9, 2015.

Lead Underwriters: Jefferies LLC, Stifel Nicolaus & Company, and UBS Investment Bank

Underwriters: BB&T Capital Markets and William Blair & Company

Business Summary: Online Provider of Loans for Non-prime Consumers

Elevate Credit offers online credit solutions to non-prime consumers in the United States and the United Kingdom. Its product portfolio includes unsecured online installment loans and lines of credit. The company has two types of unsecured installment loans called Rise and Sunny, and it offers one type of open-end line of credit called Elastic.

Elevate Credit uses its technology platform and proprietary risk analytics to give non-prime consumers with credit scores of less than 700 access to borrowing money. Its loans range in size from $500 to $5,000 in the United States and £100 to £2,500 in the United Kingdom.

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The company relies solely on Victory Park Management, a private equity affiliate, for its source of funding for Rise and Sunny loans. While Victory Park Management is stable, currently Elevate Credit has no other supplier of funds.

Since their introduction in 2013, Rise, Elastic and Sunny loan products have extended approximately $1.2 billion to around 450,000 consumers.

Elevate Credit reported $300 million in revenue for the first nine months of 2015, although the company also reported a $20 million net loss on that revenue. For the same period in 2014, the company had $180 million in revenue with a $44 million net loss.

For the fourth quarter of 2015, ELVT reported that it broke even on $134 million in revenue. This is an improvement from the fourth quarter of 2014 with $94 million in revenue and a net loss of $11 million.

Executive Management Overview

Chairman and CEO Kenneth Rees has served in his positions since 2014. His previous experience comes from senior positions at ThinkFinance Inc., Cash Works, InnoVentry, CSC Index, and Booz, Allen and Hamilton. He has an MBA in Finance and Statistics from the University of Chicago and a Bachelor of Arts in Mathematics from Reed College.

CFO Christopher Lutes has served in his position since January 2015. His previous experience includes senior financial positions at ThinkFinance, SVB Financial Group, Andigilog Inc., Silicon Valley Bank, Ohana Wireless, and Coopers & Lybrand. Mr. Lutes holds a C.P.A. with over 14 years of finance-related experience. He holds a Bachelors of Science in Accounting from Arizona State University.

Potential Competition: Lending Club, Prosper, Avant and Payday Loan Companies

Since Elevate Credit serves consumers who do not have access to conventional loans, their competition comes from other providers of non-traditional money products such as payday loan companies, pawn shops, rent-to-own stores, title loan providers, and secured credit cards. In addition, other competition comes from online venues such as Lending Club (NYSE:LC), Prosper and Avant.

Conclusion: Consider A Modest Allocation

We hear that insiders are showing confidence and like ELVT's valuation; however, similar lending companies LC and ONDK have sold off significantly since their IPOs.

Many are cautious about the 2016 IPO market (and market in general), particularly following the delay of the first major IPO in 2016, Shimmick Construction. Some are wary of ELVT's lending methods overall.

At the same time, ELVT is backed by Sequoia Capital (27.4%), shows solid measures of growth, and serves a large unmet need (largest segment of the credit market). This will be the first tech IPO of 2016 and could garner significant investor attention, perhaps setting the stage for a series of unicorns.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.