FlexiGroup sees scope to lift credit card spend for F&P Finance cards
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 $A150 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 $A2 billion, it said in a statement. The Q card and Farmers Finance card account for 21% of New Zealand credit card holders but only make up about 2% 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 a 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 $A90.1 million. F&P Finance had $A98 million net portfolio income and $A27.7 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% of his full entitlement, amounting to about $A27 million. He owns about 25% 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 $A2.55 on the ASX and have dropped 28% 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% 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.