Will Flexigroup’s $140m capital raise get its BNPL business humming?
Flexigroup has announced a $140m capital raise as it looks to rebrand under BNPL product humm.
Flexigroup (FXL) shares will be on watch this week after the company entered a trading halt Wednesday to unveil a plethora of updates.
Flexigroup is one of Australia's oldest listed fintechs, but it hasn't seen the same wild success as many of its peers in recent months – at least, in terms of stock market performance.
While other buy now pay later (BNPL) players like Afterpay (APT) and Sezzle (SZL) have seen shares jump 196% and 516% since the start of the year, Flexigroup, which has two BNPL products – Bundll and humm – is down around 30%.
BNPL stock performance YTD
- Afterpay (APT): 196%
- Zip (Z1P): 172%
- Sezzle (SZL): 516%
- OpenPay (OPP): 264%
- Splitit (SPT): 146%
- Flexigroup (FXL): -30%
But that might change this week after the company announced a $140 million capital raising and rebranding under its BNPL product humm.
It comes as the company released its annual earnings results, dividend update and growth plans.
Why the humm rebrand?
The decision to rebrand won't take place until the annual shareholder meeting (AGM), but it's a clear sign of where the company sees itself going.
BNPL platform humm, which allows customers to make interest-free purchases of between $1 and $30,000, is arguably the fintech's most well-recognised brand – a consideration that is increasingly important in the current market.
Flexigroup says its rebranding is part of a "simplification" and "unification" of its products. Flexigroup's CEO Rebecca James said in a press release following the results:
"It will also simplify our story to our customers and retailers, and clarify our significant market position as a leading BNPL player and provider of long term interest free solutions.”
Flexigroup reported net profits (NPAT) of $21.4 million, significantly down from $61.7 million the year before, thanks largely to provisions needed to cover COVID-19 challenges, it said.
However, it also reported a 30% lift in active customer numbers YOY to 2.3 million, especially from its BNPL and Mastercard products in Australia and New Zealand.
Customer numbers in Ireland doubled from the year before to 40,000 and retail and commercial partners also rose 13% from the year prior.
Significantly, its key BNPL platform humm has seen online sales jump 172% YOY, as more people turn to online shopping.
Like other lenders, Flexigroup has chosen not to pay a final dividend, although its interim dividend of $0.385 per share will be paid in October, rather than April.
How to invest in the capital raise
Flexigroup will be undergoing a $140 million capital raise and share purchase plan (SPP) for institutional and retail investors.
This means retail shareholders – regular non-wholesale investors – will have the option of buying new FXL shares at a discount. To be eligible to participate, you must be an Australian or New Zealand citizen and a registered FXL shareholder as of 7pm on 28 July.
If eligible, you'll have the option to purchase 1 new share for every 3.2 shares you own at a price of $1.14 per share – a 12% discount to Tuesday closing price of $1.31.
Further details of the SPP will be sent to shareholders in a booklet, though to participate in a share purchase plan, you typically apply through the company itself, rather than the broker.
The closing date for the share purchase plan is 15 September at 5pm, while the institutional offer will wrap up on Thursday.
Is Flexigroup a buy?
Having launched in 1991, Flexigroup is one of the most experienced and profitable players in the increasingly crowded BNPL space. It's also one of only two that pays a dividend.
However, lenders face numerous challenges, including customer defaults and company closures, as COVID-19 continues to disrupt the economy and unemployment rates rise.
Ahead of the profit results, top analyst Macquarie noted concerns around credit risks among high interest rate lenders, and set a price target of $1.25 for Flexigroup.
Meanwhile, UBS said customer payment deferrals due to hardship peaked around April and have since fallen to pre-pandemic levels. It set a "buy" rating with a price target of $1.60.
The full impact of COVID-19 on the BNPL sector will become clearer in the coming days as the other stocks release their full-year earnings reports. Depending on how they do, this could well be a stellar result from FXL, or quite the opposite.