Raylo Group Limited Research Update
Subscriber growth progress...
Founded in 2018 by Karl Gilbert, Richard Fulton and Jinden Badesha, Raylo Group Limited (11554120) has now got a few years with full accounts in the public domain for me to have a nose through.
The role of rental in consumer electronics circularity, at least from a B2C perspective, is really still emerging. We’ve yet to see what AO.com will do with the rental book acquired as part of the MusicMagpie deal and given the significant upfront cash requirements, there are few other independent consumer-focused businesses by which to judge general progress.
In the B2B sector, successful IT leasing behemoths like CHG-Meridian, CSI Leasing, Lombard, DLL, BNP and Econocom have been removing assets from your balance sheet and hassle from your operations for some time. While the proposition is no different, packaging the same marketing message for consumers is more of a challenge.
Raylo are, however, making progress. Revenue in 2023 at £18.16m was down 24% from £23.94m the previous year but this was due to a change in funding structure. I’m really no expert in special purpose vehicles acquiring receivables, but it appears that Raylo are now recognising revenue directly from consumer hire agreements (82% of 2023 revenues), rather than revenue from just selling the receivables (18% of revenues in 2023 vs 100% in 2022).
The bigger / better story is the continued rise in the customer base. Active customers increased from 49k in 2022 to almost 70k in 2023; that’s a 43% rise YoY and an 83% CAGR over the last three years. For an alternative proposition in a hugely competitive “traditional” market, that feels like progress. But, before getting too giddy, I would have liked to understand revenue split by Personal vs Business lines.
The change in funding structure makes it nigh on impossible to work out performance or value on a per-customer basis. It’s too much of an oversimplification to take total revenue / total active customers but I will: £18.16m / 69,956 = £259 per subscriber per year or £21.63 per month. Looking at Raylo’s website, that puts a brand new iPhone15 128GB on a 36-month lease in your basket, or a refurbished S24+ 512GB for 24months. Customers sound pretty happy with those types of prices too with a solid 4.5 stars on Trustpilot from over 12k reviews.
Making a few assumptions about fixed costs, and variable costs per sub remaining constant (which they won’t), unit economics suggests break-even will happen at about 133k subs meaning management were about halfway there at YE 2023. Scaling up to 200k subs could mean about £1.80 profit per month per sub and 300k almost gets you to £3 profit per month per sub. That scale-up is going require access to capital which I assume Macquarie, with their 24% ownership, will be offering expert guidance.
I didn’t spend too much time on balance sheet metrics. Rather than using a third-party SPV to acquire the receivables, at somepoint in 2022, Raylo Group fired up their own subsidiary to do the same. So, whilst the Raylo Group Limited balance sheet looks a bit iffy, add back the subsidiary’s receivables and debtors and things don’t look too bad. Raylo also introduced a holding company structure at the end of 2022 so there’s only one year of filed accounts for the group balance sheet.
The latest accounts were filed back in June, but recent attendance at the Circular Summit in London got me thinking I should probably catch up with Raylo’s performance. I’ll be keeping an eye out for further progress in 2024.
Peace.
sb.