HRouge Profile picture
22 Feb, 18 tweets, 7 min read
Unfortunately this involves banks, turnarounds and LendingClub $LC but I think something potentially quite interesting may be happening here, due to this acquisition:
When I mentioned to Munger and Buffett the other day that I was reading up on LendingClub this was the reaction - and they're not too wrong: LC is crap
However, the business model is a little different these days and if my guess is right, it may all end up becoming little more than a vestigial artifact, like Chamath's legs

Where things stand now is that it's no longer so much a P2P lender.
Whilst loan performance held up quite well, Covid was a disaster for loan originations.
And here's *that* chart.
Anyway, a year ago last week LC announced they'd be acquiring a chartered neobank called Radius and without going into the details, the big idea behind this is to capture the economics that LC currently lose to their bank partners, to lower their funding costs and gain stable NIM
That's all fine as far as it goes but my guess is that what may happen here is that the tail will end up wagging the dog.

At the time of purchase Radius had $1.4B in assets and agreed to a sale at 1.72x book, or $185M and this tallies with the holdco's numbers on their Y-9
A year later this stood at $2.6B in assets. How much of this is PPP I can't say but given the kind of bank they are and looking back, it seems fair enough to say Radius is a high growth bank
If we naively glom the two sides together we see two things: Radius is probably around ⅔ of the assets and that resulting LC+R bankco may be quite overcapitalised.

Radius brings a bank charter and their management are staying on
And as the merged company becomes a bank, my sense is that the bankers will end up steering the ship despite the talk of the benefits here for core LC. If anything, this feels to me more like a SPAC or reverse merger situation; Radius' business is where the action is, LC's isn't.
Neobanks are generally either one of two things: glorified apps renting out a balance sheet such as Chime ($14.5B) or Affirm ($27B) or they're the banks whose balance sheet is being rented, in the case of the above it's $TBBK ($1.2B) and Cross River. APIs connect the two.
Radius is quite special because it's on both sides - both the go-go front end and the FDIC-chartered back end, which in my thinking - thanks to LC - just got a lot bigger…
And it is in what is, for me, one of the most interesting areas of banking: APIs. These are what connect the two sides together. $7B $QTWO or $9B Temenos are a couple of companies here.…
There are issues: LC and the FTC are wrangling at the SC over whether the FTC is allowed to fine them over past issues; the judge earlier encouraged them to settle and avoid wasting everyone's time but it seems they're going to establish that before the actual trial starts.
And whilst APIs are certainly for real, it doesn't take much imagination to see this all ending in tears one day - but in the meantime you have the tech and payment bros bidding up the app side of things and subsidising balance sheet growth at banks.…
Differentiated banks do get rewarded by the market
But because it's not such an immediately interesting sector, at the smaller end you can put out obviously good results..

..and only open up 2% - which is to say that whilst there are plenty of interesting approaches to banks, it's a sector where GARP or mispricings can sometimes still be found. At a bit under 1.5x book when it closes, LC might be an interesting back door into neobanking and APIs.

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with HRouge

HRouge Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @hareng_rouge

26 Jan
For a long time I thought computational drug modelling really had only one listed company: $SLP

Turns out maybe not: Physiomics #PYC could be a decent candidate for a comp.

Growth is inflecting, it has optionalities and thanks to AIM obscurity it's on a fwd EV/Sales of 6.5x
I first bought $SLP in April 2013. I mention this to make the point that was long before the current bubble in futuristic healthcare stocks, or before SaaS was a thing, this was already a punishingly expensive sector.

Here are the multiples you would've seen back then
Now, $SLP and #PYC are similar but not the same.

SLP was pure software to model drug absorption, sold on licence. It had incredible margins but slow, steady growth. In 2013 it did $10M in revs and in the most recent like-for-like split, FY19, it did $20: ~+10% a year or so
Read 13 tweets
15 Jan
Some notes on TFF Pharmaceuticals $TFFP from the HC Wainwright call

20 mins long, link to call below…
This previous thread about TFF was conjecture and I think the Wainwright call gave some grounds to think it may not totally off the mark.

This is again the idea: Pfizer wants to get a powder version of the Covid vaccine in order to avoid the cold-chain issues and expenses associated with the first-gen vaccine Image
Read 8 tweets
13 Jan
Summer 20: investment co with a one holding - a REIT - gets rid of its directors after the REIT collapsed into a zombie.

Sep 20: new management, new investment: a software company with 23% pre-tax margins

Nov 20: 60% growth, big client wins

Implied valuation today <5x sales Image
There are no other numbers, this is everything there is.

The holdco is called Drumz #DRUM a £2.4M cap
The zombie is a listed REIT called KCR
The software company is called Acuity Risk Management

I have it at an implied trailing sales of ~4.9x ex £500K holdco cash and ex zombie Image
Acuity's product is called STREAM, here's how they describe it:

STREAM is a cyber security and risk management software used by organizations globally for ISO 27001, GDPR, NIST and many other standards

In short, its not a nice-to-have for big companies
Read 18 tweets
11 Jan
TLDR: headlines like the below may be masking something interesting at ReNeuron - a medical platform business

As #MXCT and $CLPT show, these sell high

Direct NASDAQ comp valued 5x higher

#RENE platform has an imminent catalyst, which may be derisked.…
Disclaimers as follows:

- I am far, far out of my lane looking at this
- The comp lives in a bubble market
- This is 100% based on crude pattern recognition
- Market appears to value #RENE for other aspects, so
- This may not work even if the idea proves correct
So, #RENE may have what may be one of the Next Big Things: a platform for the cutting edge of genetic medicine - the comp lives off that alone.

In English, they use "exosomes" to try to get mRNA and CRISPR molecules past the blood-brain barrier into the brain. See below Image
Read 21 tweets
7 Jan
Tiny, UK AIM co in specialty chemicals: specifically "sustainable polymers"

At best this usually means 1 client and a test batch; at worst, magic beans

But Itaconix #ITX is neither and it's rather mispriced: it sells at margins that rival the best in the world - and in size
It may actually be very mispriced; estimates are clearly too low. All in part because it's off the radar.

It's another find by @dopamine_uptake who pointed it out to me after reading on IP Group - some holdings of theirs caught his eye and of them, this one really caught mine.
I'll get straight to it. HY20 end October.

We see revenues up +80% on the previous year's half and they're not far off equaling the whole of 2019's revenues.

Gross margin: 37% - this rings a loud bell

Loss making. Image
Read 26 tweets
5 Jan
Now a £35M cap, a fortnight on

It's one of those small UK if-it-were-listed-in-the-US companies. Bidstack #BIDS and it puts advertising into major online games

It's rocketing - and there are some grounds to think that in quite short order it may be about to turn into a firework
"May" and also:

- history of over promising and disappointing
- very much a AIM small cap
- burns cash
- will place and dilute
- has share price on homepage
- Glassdoor is not great
- emoji issues when discussed
*But* it may now be delivering for real. If so it may also be extremely cheap. How cheap?

20H1 was 2x sequentially and 10x YoY

It may be about to report H1-H2 sequential growth of 5x.

If so, FY20: 10x YoY.

Fwd 21 rev multiple? Perhaps half that number, perhaps even less.
Read 25 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!