DomaCom (ASX:DCL) Presentation, FNN Online Investor Event, October 2020

Company Presentations

DomaCom Limited (ASX:DCL) CEO Arthur Naoumidis discusses companies products, fractional investing, Senior Equity Release, Rental Accelerator and Islamic Leverage.

Arthur Naoumidis: 
Before I start as a financial product, I've got to issue a general advice warning. So what I'm about to say is not personal advice, it's general in nature.

So move on to the next slide.

DomaCom has two key sort of product lines. The first is fractional investing and that as the name suggests, it enables people to invest in fractional parts of lumpy assets. The key asset would be property. As you'll see we also enable people to syndicate, and that's another form of fractional investing is syndication is another name for it, and investors, it can include SMSF trustees, retail investors, mum and dads. Basically all investors can invest in specific assets, specific properties generally.

So next slide please.

The flip side of this is our newly released Senior Equity Release product. As the name suggests again, it enables people to release equity from their house, and we're targeting here retirees who basically have what they call asset rich cash poor, and they can basically sell a fraction of their house to investors, and the investors will use our syndication platform to syndicate that equity. So this is what we call equity release.

Flip to next slide.

Now, before I move on, obviously COVIDS's affected a lot of us and our impact operationally is minimal because luckily for us, our BCP plan's been operational since March. So we live on the cloud. And operationally our business hasn't really noticed the change. From a sales side we've had to pivot to COVID-friendly products, our Rental Property Accelerator, Islamic Leverage and Downsizer for self-funded retirees, which I'll be going on through today.

So next slide, please.

Now the routes to market, a lot of people are probably wondering, they don't hear about us very much. And the reason is, is that we're a B2B play. And our key distribution markets are the financial advisor market, affinity groups and a B2C play. We want to be the engine under some bonnets. And so from the IFA side, we've got, and now it's about $75 million worth of assets under management. And we've got over 40 financial planning dealer groups have put DomaCom in the approved product list. This is no mean feat for a fun. Technically that's what we are. We're a managed fund, a retail-managed fund, that's really brand new and no long history. So the 40 odd dealer groups have had the investment committee meet and add us to their approved product list. The other channel for DomaCom is the affinity groups.
And by this, I mean, groups that already have distribution or a need for syndication. And so here we're talking to national builders, property developers, renewable energy companies. That's a new one. So we've just done our first syndication late last year or early this year with a wind farm. And so these groups need DomaCom to be able to further access their consumer base. And then finally, B2C, there are players who naturally deal with consumers and that's not DomaCom's speciality. What DomaCom is doing is powering these people to extend their product line. The first B2C partnership with one of our strategic investors, HALO Investing and we're in the final stages of implementing the ... well, we've begun implementing the technology interface. So people on their trading platforms can transact in fractions of properties and other assets. The next B2C play is the Islamic group that I'll talk about shortly.

So let's move on next. Next slide.

Now in terms of product lines, Fractional Investing, as I indicated is the first product line, and you'll see a main target market that self-managed super funds. We have SMSF rulings that really help our product push into this segment, but we're also using internal leverage. And as you'll see they're really good drivers for DomaCom in terms of fractional investing. Half of our investors are self-managed super funds. We've got about 1,500 investors using the platform at the moment. About 700 or so are self-managed super funds, and we're fractionally investing in property, both residential, commercial, we've got also land banking in a Badgery's Creek and also rural. So we've got a cattle farm in Western districts of Victoria. The second key product line is the Equity Release product. This has taken seven years of development with getting the product through ASIC and then the last 12 months of getting the product accredited through advisors.
And I'm pleased to say we're finally starting to get some traction in this market. And then finally, one of the areas of growth for DomaCom have been advisors using our platform to syndicate loans. So whilst the advisors have clients who are after leverage growth in capital, they also have clients and particularly retirees who can't live off the term deposit rates, which are historically low and really want a low risk method of investing. And in this case here, they're syndicating the loan, and here we're talking LVRs are 50% with Resi or commercial property. So it's a very attractive segment. So they're our three key product lines at the moment.

So next slide please.

So the target market, just to go back a bit, DomaCom is not a niche play in the asset class, which is properties, a very large asset class, but also the target market that we're targeting, the self-managed superannuation market is, we all know it's a very, very large market and our success at the moment shows that we're getting about 50% of our clients through the SMSF market. And we expect this to grow rapidly with some of the drivers that we've had lately with regards to ATO SMSF rulings and downsizer rulings that I'll talk about shortly. So now our background from our platform space is that we've created platforms in this area before. We've had 4, 5% of the SMSF market on the platform. So this is something we're looking to achieve again in the DomaCom platform.

Next slide, please.

We've had another key milestone so this last two years have started off ... with it's taken us many years before we get anyone willing to lend to us. I'm pleased to say La Trobe have finally agreed to lend to us. Our product is very unique. It's a very ... in fact, it's the only what we call true non-recourse loan structure within Australia. So investors can dial up leverage without actually being borrowers. So that's taken us quite a long time. And then about a year ago, we've got the Senior Equity Release product launched, that's after eight years. And at the same time we concluded our court case with the ATO. We won the sole purpose test ruling. So that's yet to play out through our business over the next year or two. And then this what we call Rental Property Accelerator, which we used to call Rental Loan.
We've conducted our first transaction in July. We've got another several transactions currently being structured. And then in August, we received the ATO downsizer ruling which is going to be a landmark for DomaCom, particularly in this environment where retirees are struggling to live off their dividends which I'll talk about, and then from a capital position, we've completed a capital raising over the last few weeks, 3.6 million, which places us quite comfortable there at the moment. And then we've got a revenue deal, which was announced in September, and you'll see that our shareholders have approved that last week and we're ready to move forward.

So next slide please.

So key business drivers at the moment and going forward, firstly, in this environment we've got vacancy risk and pricing risk in an area where there's going to be heightened unemployment. So we're moving to products that are going to perform well here. The first is what we call the Rental Property Accelerator and an affordable housing version of that. This is where we take develop a distribution margin, and we share that between tenants and investors. And then we've just in the process of conducting our first National Disability Scheme properties. Why that's attractive at the moment is that there's no real vacancy risk associated with disability accommodation, but there's really high yields.
And so it would be very attractive to investors. Then also we've been working for many years and we're very close to consummating a commercial deal with one of Australia's leading Islamic groups and we're targeting something that's really not going to be sensitive to investment outlook, which is being able to facilitate people of Islamic faith being able to purchase properties, using leverage without debt. So, and that's something that's I think when we can announce the detail of it to the market, it's globally unique and the upside's enormous for us.
And then self-funded retirees. Well, as we all know, they're all in crisis. we've had the government do JobKeeper, JobSeeker, JobMaker, HomeBuilder. Not one government initiative has done anything for the self-funded retirees who've suffered greatly, particularly from the slashing of dividends in banks and other shares. And so in fact, the first thing that the government has done is that they've helped DomaCom by helping us get the ATO to give us the downsizer ruling that we obtained in August, which basically allows people to sell a bit of their house to top up their super, so that's one of the key drivers.
And then they AustAgri acquisition several years ago, DomaCom acquired its license to be able to trade in securities. And we're using this to be able to acquire in the DomaCom fund a agriculture roll-up, which if successful, will add 2.6 million in annualised revenue for a minimum of five years. That's a $30 million fee, which will move our funds under management from $75 to just under $00 mil. So well in fact, just ... no, sorry, just under $400 mil with expected growth to come.

So next slide please.

So Rental Accelerator, very simple. We've taken the developers pay about 10% to distribute their products, their properties. So we take that and we split it up between the tenant and the investor. So the tenant gets a 5% equity gifted, 1% per year, and the investors get the balance as a form of reduction in acquisition price.
Why is this attractive? Well in an environment looking forward where there's going to be heightened vacancy, we want the tenants to choose us because they can choose between three properties, all about the same rent, but one of them gives them equity, which one would they go for? Our property. So it's an attractive property from a vacancy risk. It's an attractive property from a tenant in terms of investment outcome. So this will be one of our growth areas.

Next slide please.

And we've got affordable housing version of it and I think you'll see, this will be our focus going forward in the next three to six months. We're very close to consummating a deal with a what's called a Tier 1 community housing provider. We're going to start with a pilot of what's called essential workers. So we're using the developer discount to provide the discount to nurses, teachers, firemen, policemen, et cetera.
So they'll get the discount in terms of ... no not a discount in terms of that, they'll get the equity, but by accessing government, low cost government debt, they're also getting a 25% discounted rent. So it's very attractive from a tenant perspective, very attractive from an investor perspective. They still get the leverage growth with the access to the developer pricing discount. So we've got a lot of interest from investors on this product.

Next slide, please.

Obviously Islamic Leverage, we've got 700,000 Australians that ascribe to this faith, and there is no product that's naturally Islamic compliant. We are very close to launching something that we believe will have and we've got a partner that hopefully in the next couple of weeks will be able to announce a commercial arrangement. And we don't need much of the 700,000 Australians to start using this product to do very well. So it's a very scalable product for DomaCom.

Next slide please.

Senior Equity Release, basically, as I said earlier, those retirees who are asset rich, cash poor to sell a bit of their house, the key growth market for this are those retirees who can't survive on the income delivered by their investment portfolios.
And so that way they can adjust, using our product, they can adjust their personal balance sheet to reduce their investment in their current home and increase their investment in their super fund. So then that the personal balance sheet remains the same, but they can earn more money while still retaining total control of their property. So it's a very exciting product and we believe this will go well in the next few years for DomaCom.

Next slide, please.

AustAgri. This is a paddock to plate roller. They're just in the process of completing their first cornerstone acquisitions. As soon as they do that, DomaCom will begin due diligence. We had our AGM last week. Our shareholders approved the transaction, it's going to add $13 million in revenue over five years.
And we're pricing it at 13 cents a share, which is a bit higher than our current price of 6.8. It's going to be a catalyst for DomaCom's rewriting, and clearly once they're on the DomaCom fund, the reason why they're on that fund is that they want to grow. So there's a pathway to profitability from this transaction.

Next slide, please.

We're in a supportive landscape. All the banks have withdrawn from lending. Property investors are seeking their own investments in the lower vacancy risks. Self-funded retirees are seeking solutions for funding-ready lifestyle. Islamic community needs Sharia-compliant methods to purchase property and housing affordability is currently a focus of Australia.
It's just going to grow in the current context of the pandemic.

Next slide, please.

Look, we're growing and you'll see it's a bit lumpy, but hopefully next time you hear from me, there'll be a sharp uplift in this. So it's an exciting time coming forward.

Next slide please.

Pricing strategy. We're an asset manager. So our general price is 0.88%, but we're moving to a different fee model. And so we're moving 1% syndication fee with 0.66 going forward. And this will improve our cashflow enormously now with our new products. And obviously we have other fees for our mortgages and cash.

Next slide, please.

Corporate outlook. We're primed for growth and all the development's been done. So we've got Rental Property Accelerator, Affordable Housing, Senior Equity Release, Islamic market, AustAgri. We've got attractive fee model, our cash position stabilised, and our revenue at the moment once we have the AustAgri injection we've got at least two years runway without any growth and clearly we expect to get growth.

Next slide, please.

This is our ticker is DCL. Our price is volatile. Clearly we're hoping for a better 2021, and that's our 10th year. As they say, it takes 10 years to be an overnight success.

Next slide please.

And for further contact here are my contact details. Obviously you can email me or call me for any questions on a one-on-one basis. Thank you very much, Clive.


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