PEXA’s next | UK expansion 

PEXA Group (ASX: PXA), Australia’s leading digital property settlement platform, continues to build on its dominance domestically while exploring international expansion, particularly in the UK. With over 80% market share in Australia, PEXA has revolutionized the property settlement process by replacing the paper-based system with a more efficient digital platform. As the company eyes new opportunities, including refinancing and property transactions in the UK, we will unpack what are the catalysts for investors to focus. 

Domestic Market: A Strong Position with Predictable Risks 

In Australia, PEXA’s revenue model remains well-protected, generating around $300 million annually with a 55% margin, contributing to its $2.5 billion enterprise value. With a market capitalization of $2.2 billion and net debt of $200 million, PEXA is solidly positioned. Valuations of comparable companies in the tech sector trade at mid-teens EV/EBITDA multiples, placing PEXA’s valuation at around $13-$14 per share, given consensus estimates $130m in EBITDA for FY25. 

One of PEXA’s strengths is the predictability of its operating costs, which are primarily driven by labour, maintenance, and development. From the top-line, risks still exist, especially given the cyclical nature of housing volumes. Currently, the market is understood to be in a mid-cycle phase. The interest rate cycle has moved forward in terms of timing, with global inflation coming out lower than expectation, which is driving optimism about future refinancing and transaction volumes.  

 A potential challenge is the push for interoperability, which could allow competitors like Sympli to gain market share. However, the states have mostly abandoned interoperability initiatives due to the complexity of execution and the minimal benefit it would provide. It is most likely that the government will have PEXA as a regulated monopoly, with its pricing tied to CPI, ensuring it remains within government-approved limits. Given PEXA fee is a tiny proportion of the property transaction,  

From a the customers’ perspective, banks and conveyancers, PEXA has significantly improved their operational efficiency with the shift from paper to digital settlements, but they see little value in pursuing interoperability. This is due to PEXA, as the first digital settlement platform, provided the benefit of moving from paper to digital. However, competitors entering the market simply presents opportunities in pricing difference but adds operation and systemic risk to having multiple platforms to execute the same digital task. 

UK Expansion: The real opportunity, but with challenges 

PEXA’s expansion into the UK is an important component of its growth strategy, though it comes with hurdles. While the company has been laying the groundwork for its entry into the UK’s property settlement market, progress has been slower than expected. Growing refinancing platform has been difficult to ramp up, and although major banks like NatWest are expected to begin transacting on the platform in 2024, with the incentives provided for the banks signing on the platform, it would delay any meaningful top-line growth to FY26. On the flip side, PEXA had a strong performance in share price when the announcement made, showing what the investors are looking for in the future of PEXA. 

PEXA faces two key challenges in the UK. First, the local market’s understanding of PEXA’s platform and its benefits is still limited. Historically, the company has struggled to communicate its value proposition effectively, as the Australian roll-out was somewhat enforced by the government with a set deadline.  Although, the reason for a big opportunity overseas is that, as the first-mover, PEXA has the advantage of setting prices without regulation, unlike in Australia, which could lead to higher margins over time with greater return on investment. 

The second big hurdle for PEXA in the UK will likely be the conveyancers, who stand to lose out in the short term, with losing deposit interest they currently earn during a transaction. It is a challenging task for PEXA to come up with incentives for them, as there is no governing body that is enforcing to take up. Any operational benefit and efficiency gains come post adoption of the platform, which conveyancers are not likely to see until they use the product. This could slow adoption of PEXA’s sale and purchase product, which is expected to launch in 2025. General consensus is that we won’t see a meaningful growth until 2027. However, successful roll-out of the refinancing product will obviously de-risk the prospect of sale and purchase services. 

Conclusion is that it’s all timing. 

PEXA remains well-positioned in Australia, with the potential to strengthen its hold as a regulated monopoly. While risks exist, particularly around housing market cycles and the challenges of expanding in the UK, PEXA’s strong financial position and its status as a first mover in the UK offer significant long-term growth potential. The UK rollout is critical, especially in securing major banks’ participation and gaining traction in the refinancing market, and we are seeing some evidences that they are somewhat paving the way slowly but getting to the destination nonetheless. Investors willing to take a long-term view may find PEXA an attractive opportunity, with e-settlement now being a critical infrastructure in Australia, and also will be when market share grows to a critical point in the UK.