Niche financial services group Ecsponent, which has been funded mostly by a series of high-yielding preference-share issues, has made a bold play for control of Frankfurt-listed fintech business MyBucks.

The co-founder of MyBucks is Dave van Niekerk, who will be familiar to many local investors as the founder and prime mover of controversial microlending group Blue Financial Services (BFS).

Van Niekerk is no longer listed as the executive chair of MyBucks, which suggests he departed soon after the terms of the Ecsponent investment were disclosed. Van Niekerk had signed off the recent six-month to end-December financial results.

There appear to be some parallels between BFS and MyBucks.

Van Niekerk left BFS under a cloud after the company racked up losses of more than R1bn in 2009, which prompted an urgent R463m recapitalisation of the company by a private equity firm.

A struggling BFS was suspended from the JSE in 2013, and the listing was terminated last year.

It seems that under Van Niekerk, MyBucks — like BFS — has found itself under mounting financial stress. MyBucks’ interim results to end-December showed a net loss after tax of €4.8m (R78.2m), with the net asset value of the company negative by €2.56m (R42m).

Ecsponent, an existing shareholder in MyBucks, intends converting loans — advanced to the struggling fintech business — to equity at a subscription price of €1/share in a transaction worth R450m (€27.8m).

The conversions will increase Ecsponent’s stake in MyBucks from 39.7% to over 50%.

This is a significant deal for Ecsponent, which has a market capitalisation of just R263m.

MyBucks has had a gradual fall from grace on the Frankfurt Stock Exchange after peaking at €19 in September 2016.

The share started this year at about €5.70 and had drifted to about €3.66 just before the announcement of Ecsponent’s conversion package.

Terence Gregory: We see this as a profitable investment. Picture: Freddy Mavunda
Terence Gregory: We see this as a profitable investment. Picture: Freddy Mavunda

MyBucks operates banking, lending and insurance services in more than a dozen African countries, with the number of active customers topping 1.5-million. More than 2.3-million loans have been issued — with a value of €519m — in the eight years since inception.

Despite this brisk start it seems the initial euphoria around MyBucks’ offering of technology-driven financial services has worn off.

The big question is whether Ecsponent, which operates its own specialist lending businesses in Southern Africa for small to medium-sized enterprises, can rapidly find profitable traction at MyBucks.

Ecsponent CEO Terence Gregory points out that the loan conversion means a significant improvement in the equity side of MyBucks’ balance sheet.

He says this will drastically reduce finance costs, which will flow directly to the bottom line.

He adds that the bottom line could also be bolstered by management restructuring and the reduction of overheads.

"This process has already started and is being led by Ecsponent and new management."

The interim results from MyBucks do indicate some growth at the top line, with revenue up at €37.4m (previously €30m) and operating profit slightly lower at €9.1m (€9.8m).

Profits were eroded by finance costs of €12.2m, while there were also marked increases in operating expenses at €7.4m (€6m) and employee costs at €10m (€7m).

Gregory contends MyBucks remains a perfect fit in respect of Ecsponent’s target profile and sees huge potential in a restructured business.

"It offers a high-technology, high-profit-margin business … and operates in a region with a retail banking penetration of just 38% to GDP (half the global average for emerging markets). The opportunity for fintech innovations to bank the unbanked has never been more pronounced."

He points out that Ecsponent — aside from a strong operational footprint in SA — also has a presence in Eswatini, Zambia, Zimbabwe and Botswana.

"By taking control of the MyBucks group, we will be able to realise our objectives of expanding our business in other areas of the continent." MyBucks loan offerings are concentrated in Zimbabwe, Malawi, Uganda and Mozambique.

More specifically, Gregory argues that the intrinsic value of MyBucks and the sum of parts of its underlying businesses are substantially higher than its current market capitalisation. "Growth in Africa’s banking sector is predicted to be double that of the developed world and enabled by fintech, we see this as a profitable investment," he says.

Ecsponent’s Sens announcement does, however, signal an intention to undertake a capital-raise during November 2019.

Ecsponent has agreed to waive any rights to participate in the said capital-raise, provided that its stake in MyBucks does not dilute below 50%.

Interestingly, the Sens announcement notes that MyBucks is also currently negotiating with two other parties — MHMK and Finsbury Investment — for the settlement of the debt owing in exchange for the issue of MyBucks shares.