- Ecsponent to take control of the MyBucks group continuing its growth trajectory
- Control of MyBucks S.A. expected to result in:
- Improved profitability for both Ecsponent and MyBucks groups
- Increased footprint, products and infrastructure for the Ecsponent group, as well as improved currency and geographical diversification
- Reduced concentration risk and increased control over underlying assets
- Recapitalisation of the MyBucks group
- Interim results reflect ongoing balance sheet growth and balancing of short- and long-term horizons
Johannesburg, 26 March 2019 – JSE-listed specialist Financial Services Group, Ecsponent Limited (“Ecsponent” or “the Company” or “the Group”), today announced that it is intending to conclude an agreement, which will see Ecsponent take control of the Frankfurt-listed fintech company, MyBucks S.A.
Ecsponent Chief Executive, Terence Gregory commented:
“The Ecsponent group has been one of the primary funders of the MyBucks group since its establishment in 2011 and supportive of the fintech group’s growth and value proposition. As part of Ecsponent’s strategy to increase its investment base of assets focused on capital growth, the Group has increased its shareholding in MyBucks over the past three years. This has resulted in an improved balance between short-term cash generative assets and longer-term capital growth assets.
As with all its investments, Ecsponent has been monitoring the MyBucks group and management believes that now is opportune to take control of MyBucks. Ecsponent has successfully approached the MyBucks board of directors to bring about changes for it to assume control of that group, strengthen management and unlock operational inefficiencies for enhanced profitability. These changes will ensure alignment between the groups and result in a realisation of Ecsponent’s investment objectives.”
In terms of the proposed agreement between the groups, Ecsponent will convert the loans it has advanced to MyBucks to equity at a subscription price of EUR1.00 per share. The value of the transaction is R450 million or EUR27,829,313 and will increase Ecsponent’s shareholding from 39.7% to over 50%, at an average price of EUR2.89 per share, once approved by shareholders.
The result is a significant improvement in MyBucks’ equity side of their balance sheet while drastically reducing finance cost, which will flow through directly to the bottom line. Additional value from the transaction is expected to flow through to the MyBucks bottom line through management restructuring and reduction of overheads – a process which has started and is being led by Ecsponent and new management.
“MyBucks offers a broad portfolio of virtual banking and insurance products in 13 countries and owns banks in five countries. 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. Additionally, the valuation of MyBucks’ underlying assets is more than double its current market capitalisation.
“MyBucks remains a perfect fit in respect of the Group’s target profile as it offers a high technology, high profit margin business, while providing significant barriers to entry. It 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. Through a change in management, refinement of focus and significant cost reduction, we see tremendous potential in this investment.
“Ecsponent has a strong operational footprint not only in South Africa but also in Swaziland, Zambia, Zimbabwe and Botswana with in-country client representation in each country. 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,” Gregory says.
Ecsponent has also released interim financial results for the six months ended 31 December 2018.
In line with its strategy to build a strong balance sheet able to meet its short and long-term commitments, the Group’s assets have shown a compound annual growth of 110% per annum over the past five years. Similarly, total assets have increased by 90% measured against the comparative results for the six-month period ended 30 September 2017 (“Prior Period”).
Results highlights (compared to Prior Period)
- Gross assets increased by 89.8% to R2.8 billion from R1.5 billion.
- Of the Group’s R2 775 million total assets, R1 275 million, or 46.0% of total assets, are held outside of the Common Monetary Area. These investments provide a hedge against a weakening rand.
- Investment in Associates increased by 173.9% to R748 million from R273 million.
- Loans and Advances increased by 18.9% to R1.2 billion from R1 billion.
- Revenue from continuing operations increased by 29.5% to R200 million.
- Operating profits from continuing operations increased by 70.2% to R218 million compared to R128 million.
- Net cash inflows from financing activities increased by 40.8% to R408.3 million from R290 million.
“Having achieved significant growth over the past seven years, the Group continues to strive for further expansion of its product and investment spread.”
The period under review coincided with the build up to the initiation of the takeover of the MyBucks group and consequently, revenue and operating profit did not increase at the triple digit returns the Group has been posting over the last seven years. Revenue increased by 29% and operating profit by 70% when compared to the comparative period. Headline earnings per share (HEPS) commensurately decreased by 81.6% and earnings per share (EPS) is down 89.8%.
“While the income statement reflects the effects of the transitionary process, the culmination of the book build process for the MyBucks investment will realise significant balance sheet value in the medium term. This, combined with focused growth of the credit book, supports our long-term strategy.
In terms of its fund-raising activities, the Group recently concluded a term sheet for an international funding facility of ZAR700 million from Afreximbank. Management anticipates the funding to be available in the third quarter of 2019, subject to the completion of Afrexim’s processes. This rand-based funding will be deployed to expand its lending activities in the region.
“All our efforts are clearly aligned to support momentum for growth, which is already evident in the group’s operational performance for in the current reporting period,” concludes Gregory.