PensionBee is the leading disruptor of one of the UK’s most lucrative financial sectors. Pensions house a huge wealth pool (>£1 trillion in PensionBee’s defined contribution addressable market), with customers looking for a multi-decade relationship with their provider to achieve financial security. Fuelled by £50m raised in its April 2021 IPO, PensionBee is ramping up growth.
At the end of its latest financial year (Dec 21), PensionBee had secured 117,000 invested customers, up 70% from 69,000 at the end of FY20. It had also grown its assets under administration (AUA) by 91% to £2.6bn (from £1.4bn), and its revenue by 103% to £12.8m (from £6.3m), with run-rate revenue of £16.3m in Dec 21. In fact, it has roughly doubled revenue every year since 2018.
PensionBee has built a technology platform that has started to demonstrate its operating leverage potential. While not yet profitable, it is rapidly closing in on that milestone. Adjusted EBITDA margin improved from -236% in 2018 to -129% in FY21 and is forecast to turn positive from Dec 23.
The investment case is compelling:
- PensionBee has hardly scratched the surface of its growth potential – it still has a tiny market share (<0.25%) of a huge addressable market.
- Revenue growth benefits from ‘snowballing’ effects: New customers add ‘lump sums’, then typically make regular contributions until retirement, while investment returns compound.
- AUA and revenue is likely to be less volatile than most other wealth managers as customers are mostly unable to withdraw assets, and make regular, often ‘automated’ contributions.
- Profitability is likely to ratchet up very quickly once positive as the cost base spreads across a growing customer base, and existing customer revenue grows without new marketing spend.
- PensionBee is well capitalised and should meet its growth potential without new equity.
- It is founder-led (co-founders own 42%) with their interests aligned to other shareholders.
- A transition to the Premium Main Market Segment of the LSE is a target for H1 22 (currently listed on High Growth Segment of Main Market): the Premium Segment demands the very highest listing and governance standards, and allows for inclusion in FTSE indices.
Our fundamental value is 230p per share, 63% above the current share price. This is based on discounting the future cash flows of our growth forecasts. If progress tracks forecasts, we see potential for the share price to close the gap on fundamental value. If our forecasts are exceeded, there could be further potential upside for shareholders.
