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A Broker's PreView - FlexiGroup Flexes Acquisition Muscle with F&P Finance Purchase

Overview: Australian company, FlexiGroup, may not be a household name in New Zealand, but their pending acquisition of Fisher & Paykel Finance means that many readers will soon have a relationship with the Company.

Pros: In fact the brands under the F&P Finance banner, Q Card and Farmers Card comprise 21 percent of New Zealand credit cards. Although in the pocket of 21 percent of NZ card holders, the spend on these cards only represents 2 percent of New Zealand credit card spend. This differential is a major opportunity for FlexiGroup.

The Company will be looking to narrow that gap by transitioning card holders from the closed loop product structure currently utilised by F&P Finance, over to MasterCard which will vastly increase card acceptance and potentially card usage.

The F&P Finance assets will compliment FlexiGroup’s current portfolio, particularly their Australian based Once and Lombard cards which are also interest free cards (they are only interest free for a period of course).

Ironically, the funding for the purchase includes the issuance of a $55 million interest free perpetual note. This was issued by current F&P Finance owner Haier to FlexiGroup to aid the completion of the $294 million deal. FlexiGroup shareholders will expect the Company to pay the notes off within the interest free period to avoid the interest charges which start to ramp up in year 3.

Cons: The deal is subject to Overseas Investment Office approval, but as the transaction is between Haier (Chinese owned) and FlexiGroup (Australian listed) it is unlikely it will face too much opposition.

Execution risk can never be ruled out as acquired businesses always have an unknown aspect. Credit risk should also be considered, as economic downturns can impact the ability of debtors to pay off loans. Economic downturns will also decrease the amount of money borrowed as belts are tightened.

Price performance: The share price jumped 17 percent in the first day of trading after the acquisition announcement. They are currently trading relatively flat for this year, after dropping 33 percent last year.

Investment outlook: The acquisition price looks reasonable, as does the potential upside from synergies. Consumer credit is not without risks, particularly in FlexiGroup’s operating space.

Grant Davies
Investment Advisor
Phone: 03 353 0795
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*A Broker's View is written by Grant Davies, Investment Advisor at Hamilton Hindin Greene Limited. This article represents general information provided by Hamilton Hindin Greene, who may hold an interest in the security. It does not constitute investment advice. Disclosure documents are available by request and free of charge through www.hhg.co.nz.

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