Payment solutions provider FlexiGroup Limited (ASX:FXL) announced the acquisition of New Zealand based Fisher & Paykel Finance for A$275m or NZ$294m.
Fisher & Paykel Finance is a provider of non-bank consumer credit in New Zealand. FlexiGroup states that F&P has 430,000 active card holders with receivables of NZ$662m and an equally large amount of new business volumes.
The total consideration for the acquisition is A$275m which will be funded through a fully underwritten non-renounceable entitlement offer to raise A$150m, existing corporate debt facilitates and surplus cash.
Flexigroup Chief Executive Officer David Stevens commented on the proposed acquisition: “Fisher & Paykel Finance is a very high quality asset that FlexiGroup worked hard to secure because it compliments and offers synergy to FlexiGroup’s existing card business.”
David Stevens calls the deal “transformational” as it positions FlexiGroup as “one of the leading non-bank financial services providers across Australia and NZ.”
Equity Raising at $2.20 per FXL Share
The equity raising that was announced today will be in the form of a 1 for 4.46 pro-rata accelerated non-renounceable entitlement offer that will raise up to A$150m. The offer price is $2.20 and as in most cases it will comprise of an institutional and retail component.
FlexiGroup is trying to comfort investors by announcing that Chairman Andrew Abercrombie, who is a 25% shareholder of FXL, has agreed to take up 71% of his entitlement to contribute a total of A$27m.
FlexiGroup Reiterates Guidance
Flexigroup took this opportunity to demonstrate strength by reaffirming its FY16 NPAT guidance of $92-$94m. The expected dividend payout ratio will be approximately 50-60% of Cash NPAT, most likely at the lower end.
Consumer finance stocks have experienced challenging 12 months as investors fear that regulatory changes may negatively affect operations. FXL has been trading in a bear market since late 2013 falling approximately 50% from its high, even though the ASX was bullish for most of the time. Selling is likely a result of a combination of regulatory scrutiny, customer default risk, competition and vulnerability to interest rate rises. Whilst micro-finance stocks where “the place to be” after the GFC, the balance of risk is no longer positive in this sector. A break of the current downtrend would be needed in order to restore investor confidence.
Author: Simon Herrmann
Oct 27, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.