UPDATE: FlexiGroup sees scope to lift credit card spend for F&P Finance cards

Tuesday 27th October 2015

FlexiGroup, the ASX listed financial services company, says it sees a significant opportunity to lift the share of New Zealand credit spending captured by Fisher & Paykel Finance Holdings' Q card and Farmers Finance card, should its $315 million acquisition be approved.

FlexiGroup has agreed to buy F&P Finance from its parent, F&P Appliances Holdings, the home appliances maker owned by China's Haier Group, subject to approval from the Overseas Investment Office and the Reserve Bank of New Zealand, F&P Appliances said. FlexiGroup's shares were halted from trading on the ASX for a fully underwritten entitlement offer to raise A$150 million.

The transaction will also be funded by expanding existing debt facilities and using surplus cash, the Australian company said. The upfront cash amounts to $250 million, with $65 million deferred, made up of $55 million of perpetual notes held by the vendor and $10 million as a deferred consideration payable in two years.

Buying F&P Finance will add $662 million of receivables and 430,00 active cardholders to FlexiGroup, lifting the group's receivables to more than A$2 billion, it said in a statement. The Q card and Farmers Finance card account for 21 percent of New Zealand credit card holders but only make up about 2 percent of the nation's annual credit card spend of about $31.4 billion, which offers "significant opportunity to increase share in the credit card spend across both card products," it said.

That would be achieved by migrating to a new card scheme, using Mastercard, from the existing "closed loop" product structure, it said. "Increased acceptance will drive move to 'front of wallet' (for the Q card) and increase usage on everyday items," it said.

FlexiGroup plans to operate F&P Finance as a standalone business, retaining Greg Shepherd as chief executive. FlexiGroup had net portfolio income of A$273 million in the June 2015 year, generating cash profit of A$90.1 million. F&P Finance had A$98 million net portfolio income and A$27.7 million cash profit in that period.

The company said it sees "meaningful cost synergies" from consolidating F&P Finance's operations. The acquisition would be "high single digit" accretive to earnings per share in 2016.

Flexigroup founder and chairman Andrew Abercrombie will take up the entitlement offer for 71 percent of his full entitlement, amounting to about A$27 million. He owns about 25 percent of FlexiGroup.

Buying the finance company would mark FlexiGroup's second New Zealand acquisition this year after it agreed to buy Spark New Zealand's Telecom Rentals business for $106 million.

FlexiGroup shares last traded at A$2.55 on the ASX and have dropped 28 percent in the past 12 months. The stock is rated a 'buy' based on the consensus of 10 analyst recommendations compiled by Reuters.

Haier effectively rescued F&P Appliances in 2009 when it acquired a 20 percent stake as part of a capital raising that let the company refinance its debt. The local manufacturer got distribution into China as a result of a reciprocal agreement, the ability to further license its technology and toll manufacturing opportunities. The Chinese company took full control in 2012 and F&P Appliances was delisted from the NZX.

F&P Finance contributed about $137 million of revenue to the parent company in 2014, up from $98.6 million in 2013.

BusinessDesk.co.nz

Comments from our readers

No comments yet