Ecsponent continues asset growth trajectory, creating a solid investment case
- Acquisitive growth continues to provide platform for exponential growth
- Financial performance for the year expected to be impacted by weak trading conditions in operational areas
- Overall business model remains resilient with continued investment in operations anticipated to contribute in medium term
- Growth in the Wealth business through increased assets under management and product diversification
- Consolidation of Ecsponent’s interest in the listed MyBucks investment during the year below trading value at € 1.00 per share
- Increased exposure to hard currency assets providing a rand hedge
Speaking to investors ahead of the Group’s financial year end on 30 June, CEO Terence Gregory elaborated on progress made during the last six months of operation.
“Ecsponent’s business model has demonstrated its resilience in this low-growth environment and although not entirely immune to the greater economic and political environments, the Group has continued to build a strong asset base. We raise capital through our Investment Services business unit, which we deploy in credit assets that generate short-term liquidity and cash flows to our operations. To balance our longer-term matching requirements and support long-term capital growth, the Group invests in growth assets through the Equity Holdings business unit.”
Since 2018, the Ecsponent Group has announced and entered into transactions that support its objectives that increase its total assets and over time, result in attractive yields for investors over the medium to long term. The Group’s primary investment sectors include financial services, fintech, healthcare and renewable energy. It is also in the early stages of research and feasibility assessments to diversify investments into additional sectors such as green energy investments, electric vehicles and cannabis farming for medicinal and commercial purposes.
Some of the transactions the Group announced involved, inter alia, the conversion of certain credit assets into equity assets. This is the case with the transaction the Group announced in March 2019 whereby, subject to shareholder approval, it will further increase its investment in Frankfurt-listed fintech company, MyBucks. This increased stake will result in the Ecsponent Group taking a controlling interest in that company.
In terms of the agreement, which included a change in MyBucks’ management team, Ecsponent converts the loans it advanced to the MyBucks group, together with predetermined assets to the value of R450 million into MyBucks shares at a subscription price of EUR1.00 per MyBucks share. If approved, the transaction will decrease the average price of Ecsponent’s MyBucks shares to EUR2.89 per share.
“The valuation of MyBucks’ underlying assets is more than double its current market capitalisation. Scrutinising the numbers supports our assertion that our investment in MyBucks has significant potential to unlock value for the Group in the medium term. We have also identified synergies in selling other Ecsponent products and services through the MyBucks technology platform in future. In addition, the fiscal gravitas provided by the five banking licences will improve Ecsponent’s leverage in the countries,” adds Gregory.
The MyBucks group has secured five banking licences and seven deposit-taking licences across 12 countries (mainly in Africa). The brand is growing its more than 500 000 banking customers by over 100 bank accounts opened every day in each market and is the fastest-growing bank in Malawi and Mozambique. In addition to its footprint and licences in key territories, MyBucks has received several awards for using fintech to promote financial inclusion.
The 2020 financial year represents a transition phase for Ecsponent with the impact of various transactions expected to positively contribute to the balance sheet growth trajectory over the medium term.
“Demand for credit remains strong, particularly in the underserved SME sector across Africa, producing liquidity, cashflow and profits in the shorter term for the Group. This business segment remains Ecsponent’s largest revenue contributor, although the conversion of credit assets to equity assets is likely to impact the business unit’s short-term revenue and profitability,” adds Gregory.
“Our target is to maintain the asset split of approximately 50% of credit assets and 50% equity assets, which we expect to contribute to bolster revenue and profitability in future financial periods.”
Contributing to the growth of credit assets were new agreements the Group concluded with several large corporate businesses to support their supplier development initiatives. In addition, Ecsponent successfully concluded agreements where it funds several regional vendors to supply goods for construction including batteries, solar panels, inverters, mounting structures and transformers to various renewable energy projects in Southern Africa. The impact of these agreements will be seen during the 2020 financial year.
Unfortunately, the upswing reflected in international and local markets during the first quarter of the 2019 calendar year has not been sustained and South Africa is likely to continue to reflect negative real growth. While rising valuations are good news, the likelihood of market volatility or perhaps even a correction is an increased possibility. Additionally, due to the Group’s cross border business activities, currency volatility remains a risk to be monitored and managed closely.
“Despite a challenging trading year, Ecsponent’s business model has demonstrated its resilience in this low-growth environment, solidifying the sound foundations for ongoing sustainable growth. Notwithstanding the expectations of ongoing sluggish economic growth in South Africa, the Group will continue to focus on its core business segments, the consolidation of MyBucks, further acquisitive growth, debt and sectoral diversification as well as cost management and capital allocation,” concludes Gregory.
It is expected that Ecsponent will release its results for the year ended 30 June 2019 on or about 30 September 2019.