GFL - Geneva Finance

[Ferg]

Might as well start a thread for Geneva Finance.  They are a small cap lender on mostly vehicles, plus insurance with a sprinkling of minor income from other sources.  Extremely low liquidity so it is not everyone's cup of tea.

They recently announced the latest HY result ended Sept 2023 will be down around 20% on last year.  This is due to higher borrowing costs from depositors and the cost of relocating their office.  The risks of lending long and borrowing short....
Source: https://www.nzx.com/announcements/420808

And they also announced today an EGM to approve expanding borrowings from a major shareholder.  This requires shareholder approval given it qualifies as a significant transaction.  Whilst the headline maximum rate of 15% per annum appears eye watering, it is a maximum rate and the actual interest rate is expected to be in line with current rates from their major financier, Westpac, who provide a securitisation facility.  The reason for the additional funding is due to constraints on how much Westpac will fund and GFL wish to pursue growth opportunities.  A capital raise was considered but is parked for now.
Source: https://www.nzx.com/announcements/420892

They are investing for growth and are experiencing growing pains.  No ESG nonsense.  Some indicators heading in the right direction.  GFL earns more from their insurance arm, Quest, than from lending.  However, Quest hit a road bump recently with the Reserve Bank regarding solvency and statutory fund requirements:
https://www.nzx.com/announcements/418928

Last annual report is here: https://www.nzx.com/announcements/414058

And:
https://www.genevafinance.co.nz/stakeholders
https://blog.genevafinance.co.nz/who-is-geneva-finance

[Basil]

Be very careful with this one folks.  Lenders of last resort don't do well with loan delinquencies in tougher economic times.

[Ferg]

Be very careful with this one folks.  Lenders of last resort don't do well with loan delinquencies in tougher economic times.

I'm not giving any advice on this one and I would trust our learned readers saw the qualifications and concerns I posted.  A major impediment for me is the low liquidity.....it's almost zero.

Fair comment about "lender of last resort"....but in defence of GFL they survived the GFC when many others did not.  I was more concerned about losses from car insurance given recent cyclone/weather events.  I trust they are correctly provisioning for IBNR claims.

Disclosure: no longer hold but curious at the right price.

[Basil]

Fair enough Ferg and yeah they did survive the GFC with the help of deposit holders who were forced to convert some of their deposits into shares that subsequently tanked.

Liquidity in the shares has always been a problem and we got stuck with a lot of them in the above process.

They never seem to have been very good at provisioning their loans for more difficult economic times.  Provisioning as you know is based on modelling...it just that it's very difficult, (actually impossible really), to model delinquency rates for highly adverse cost of living crisis conditions.  Worth noting, they have over $20m of unsecured loans too.  I'd never go there again but each to their own.

[lorraina]

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/GFL/418983/403911.pdf

Their agm presentation above covers most items.
I found it interesting the very high growth their Quest insurance division is achieving,and they survived the floods and cyclone.Increasing their premiums should help..I do not know where they invest their insurance reserves..NB TRA invest in Turners sites.
Westpac is increasing their lending to GFL by $20mil to $100 mil and their major shareholder is also lending them more,subject to shareholder approval.
Used to be higher interest rates improved lenders margins.Has not been the case with GFL,GEN, or TRA,[and others] recently.
Never owned GFL shares.Doubts remain.


 

[lorraina]

https://www.nzx.com/announcements/422642
As per other Finance companies higher interest rates have affected NIM.
Their insurance business Quest is performing extremely well.

[lorraina]

Quest Insurance Group Limited (Quest) reported a pretax profit of $3.2m, up 27.1% on the prior period. The good result was driven by continuing the prior year's premium growth momentum. Premiums were up $3.5m (+18.5%) for the period. The higher interest rates benefited investment income of $0.9m, up $0.7m on last year. Quest operating costs including direct costs were up $1.3m mainly due to investment in staff and IT.

[Ferg]

Thanks lorraina.  Certainly growth is coming from the insurance arm.  And as you noted the increased insurance float earns additional interest and is available for lending at no cost to GFL, subject to regulatory restrictions.

Insurance revenues for H1 are 61% of the total insurance revenues for LY so a straight annualised figure with no growth has insurance revenues beating last year by 22%.  However, the last 3 HYs have insurance revenues of $14.5m, $16.3m & $18.9m respectively - so running a ruler through that suggests H2 could be say $21m giving FY24 insurance revenue of ~$40m.  Underwriting profit is stable at 43% versus LY, so the extra insurance sales could deliver an additional ~$4m in underwriting profits over last year assuming that ratio is maintained.

With the $20m extension to the Westpac facility and 100% shareholder approval for the new $10m related party loan, they are gearing up the lending side of the business for growth.  I note there were objections to the maximum interest rate payable and this was reduced from 15% to 10%.

Provisions for credit losses are sitting at 16% of receivables, which is comparable to the end of last FY.  I calculate NIM for the last 3 half years as 5.8%, 5.4% and 5.5% (based on net interest income / nett finance receivables).

What is interesting in the P&L is that all financial metrics are up for the HY, but it was asset impairments of $0.8m that made NPBT lower.  I would like to understand that more and if this is anything to do with the one off costs incurred in moving offices.

No word on a dividend, yet.  No obvious red flags based on that HY result.

[Ferg]

GFL have appointed a Director to replace the recent departure.  Seems to be well experienced being ex Rank Group / Whitcoulls.
https://www.nzx.com/announcements/426037

[Ferg]

GFL have resumed paying an interim dividend, ex date 22 March:
https://www.nzx.com/announcements/428159

And their NPAT guidance for the current fiscal has been reaffirmed as a reduction of 24% YoY:
https://www.nzx.com/announcements/428158

They also announced they will exit 2 non-core business divisions to focus on lending & insurance.

[lorraina]

Divie is a surprise.
"to exit the invoice factoring
and debt litigation operations. "
Makes sense to me.

[Basil]

So, Stellar Collections in name but not in performance, there's a big surprise, (NOT).

[lorraina]

Ha ha,,,,,,yes.....Whoops...... No........lol

[Ferg]

Upcoming vote for Geneva Finance as to whether or not they move to the USX:
https://www.nzx.com/announcements/433323

And in other news they have shut down the loss making activities of Stellar Collections, debt litigation & debt factoring to focus on the core activities of lending and insurance. FY24 result was to expectation with a couple of one-offs negatively impacting NPAT for the year:
https://www.nzx.com/announcements/432076

Interesting to see insurance is jumping ahead of lending in leaps and bounds. I am picking 8c NPAT contribution just from insurance in FY25; FY24 was impacted by a one-off tax subvention payment to utilise tax losses from the business units being closed.

Add that to the other initiatives over the past 12 months and at 20c this is trading on a forecast P/E of under 2. Throw in a dividend policy of 35% and the forward yield also looks good.

[Basil]

They never seem to have been very good at provisioning their loans for more difficult economic times.  Provisioning as you know is based on modelling...it just that it's very difficult, (actually impossible really), to model delinquency rates for highly adverse cost of living crisis conditions.  Worth noting, they have over $20m of unsecured loans too.  I'd never go there again but each to their own.

Note this warning from November 2023 when the shares were ~ double what they are today.
I shudder when I think about how many bad debts they are now incurring.  Some economists think the present situation for households is worse than the GFC which is when the wheels came off for Geneva finance last time.  Maybe they will survive again, or perhaps its curtains this time?
I am starting to see some real financial pressure on some of my clients.  For people who borrow from lenders like Geneva, I'd imagine many of their customers are doing things really really hard at present.