Shares in Finbond plunge 10% despite it raising dividend 36%
Finbond’s share price fell as much as 10% on Wednesday despite the short-term money lender raising its dividend by 36% for the year to end-February.
The dividend amounted to 9.91c per share
Subsequent to the reporting period, Finbond raised nearly R400m in a rights issue underwritten by Riskowitz Value Fund and Net 1 Finance.
Riskowitz is the same financier that gained control of Taste Holdings by underwriting a rights issue, and then proceeded to replace the management of the Southern African franchise owner of Starbucks and Domino’s. Taste is scheduled to release its results on Thursday.
Finbond’s results statement said Riskowitz and Net 1 elected to use the rights offer to convert debt into equity.
The JSE-listed mutual bank, which has aggressively expanded into the US via acquisitions, reported its headline earnings per share (HEPS) grew 81.2% to 33.7c in its 2018 financial year.
The group, which said it still has a 30% market share of all two-and three month loans in SA, reported generating a 24.1% return on shareholders’ equity.
In the period under review, the average loan size was R1,479, with an average tenure of 3.7 months. The group granted R1.6bn worth of loans and received cash payments of R2.5bn from customers. The whole loan portfolio turns over three times a year.
Finbond increased its presence in the North American short-term lending market with the acquisition of another 86 short-term lending stores in the US.
Overall, the company’s branch network rose 22.2% to 672 branches, with 415 branches being in SA and 257 in the US.
There are plans to increase the branch network in SA by another 30 branches in the year ahead and to expand the US network by an additional 60 branches.
The group reported a 46.3% increase in loan and other fee income to R841.3m.
Turnover increased 53.4% to R2.4bn, while after-tax profit rose 62% to R334.9m. The majority of profit for the year was derived from small personal loans.
The company ascribed its "exceptional results" to continued successful expansion into the US, along with a strong focus on the short-term lending business, conservative lending practices, strict upfront credit-scoring procedures, effective collections, an increased distribution footprint and a strong focus on customer service.
Its overall strategy is transforming Finbond into a focused, multinational business diversified across regions and products, with 59% of revenue in US dollars.
The intention is to grow dollar earnings to about 70%-80% of the group’s earnings in 3-5 years.
Finbond said its average loan period is significantly shorter than our larger competitors, with its average loan size significantly smaller.
"Given this conservative approach, Finbond does not have any exposure to the 25-84 month, R21,000-R180,000 long-term unsecured lending market that continues to cause significantly increased write-offs, bad debts and forced rescheduling of loans," the company said.
"Finbond’s historic data and vintage curves indicate that shorter term loans offer lower risk as consumers are more likely to repay these loans as opposed to longer term loans."
Although Finbond as a mutual bank is not subject to the Basel III requirements, it said it already complied with, and significantly exceeded, all Basel III requirements set for 2018 and 2019.