Pexa’s (ASX: PXA) first-quarter Australian transaction volumes rose 6% year on year, supported by a 16% increase in refinances. The company also reaffirmed its full-year guidance and reiterated plans to launch its UK remortgage service with NatWest in early 2026. Shares traded flat on the day.

Why it matters: On balance, the update is in line with our expectations. We maintain our fiscal 2026 revenue forecast of $419 million.

  • Refinancing activity benefited from the recent Reserve Bank of Australia rate cuts, which encouraged borrowers to switch lenders to secure lower rates. We expect refinances to normalize over fiscal 2026, with lower rates typically spurring refinancing activity before reviving property turnover.
  • The UK market is strengthening, supporting stronger Optima and Smoove volumes since the end of fiscal 2025. While it appears early adoption efforts have gained traction, the international segment is cash flow negative, and we ascribe a 50% chance of a successful UK market entry.

The bottom line: We maintain our $20 per share fair value estimate for wide-moat Pexa. Shares screen as materially undervalued, as the market seems to ascribe no value to the UK business. We believe it’s unrealistic to expect large losses to continue indefinitely without resolution.

  • Without success in the UK, we’d expect the expansion effort to be abandoned within the next few years. According to guidance on cash outflows, every incremental year of unsuccessful investment in the UK business results in a 1% reduction in our valuation, which we view as a manageable risk.

Coming up: The federal government’s 5% Deposit Scheme came into effect in October, allowing first home buyers to purchase with only a 5% deposit. While this supports housing activity, we expect limited benefit for Pexa, as recent, higher-than-expected inflation has delayed rate cuts and tempered transaction volumes.

Pexa’s investments in UK carry little risk compared with the upside potential

We expect Pexa’s strategic focus for the foreseeable future to be on its overseas expansion into the United Kingdom. Pexa’s exchange business is mostly saturated in Australia, leaving overseas expansion as the primary driver of growth. However, Pexa does not enjoy an equally supportive environment in the UK as it did in Australia. In Australia, the country’s largest banks co-owned it and with a legal mandate from state governments to move to e-conveyancing, this helped drive adoption. Pexa will therefore have to invest heavily into product development, and especially sales and marketing to drive adoption of its platform by sufficient market participants for network effects to kick in.

We don’t expect Pexa’s Australian business to require much ongoing strategic focus. Pexa’s Australian exchange business is used for the settlement and lodgment of around 90% of property transactions in Australia, with the balance consisting nearly exclusively of transactions that are still paper-based in some of Australia’s smaller jurisdictions and functional niches. We don’t see competitive threats to this business. We see Pexa’s wide economic moat well-protected by network effects and switching costs. We therefore expect Pexa to gradually increase its market share to close to 100% of transactions.

Pexa’s other business in Australia, which primarily consists of data-related products, is an area of growth, but it pales in comparison to the UK opportunity and is under strategic review.

Bulls say

  • Pexa is a natural monopoly in Australia and well-protected by a wide economic moat.
  • Despite heavy investment today, Pexa’s Australian exchange business, like other exchange and financial infrastructure businesses, has the potential for high margins.
  • Successful overseas expansion has the potential to materially increase Pexa’s addressable market and provide additional operating leverage on product development expenditures.

Bears say

  • Interoperability and regulation may force competition for Pexa’s Australian exchange business.
  • Pexa’s UK expansion may be unsuccessful.
  • Pexa’s expansion into adjacent products and services, including through acquisitions, have not yet delivered notable benefits.

Get Morningstar insights in your inbox

Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.