Overview: ThinkSmart Limited (“TSM”, the Group”) is an Australian micro-finance Company focused on the UK. It provides a point of sale financing solutions through alliances with major international retailing groups. The Company’s patented ‘QuickSmart’ technology facilitates credit approval in just a few minutes, whether customers are online or in-store. December 2013, TSM announced the sale of its Australian & New Zealand businesses to FlexiGroup (“FXL”) for $43m.
Catalysts: Keith Jones’s appointment as CEO and the disposal of TSM’s marginal ANZ operations provide a platform for growth. Following a three-year rationalisation phase, the Company has resolved to exclusively focus on its profitable UK operations, where Mr. Jones’s alliance partner background is expected to drive opportunity. The remaining business has a CY2014 NPAT profile of $3m, and post special dividend, net assets of ~$57m (35c/share). A 7.4c return of capital is expected in May, and the Company intends to undertake a share buyback for up to 10 percent of the issued capital.
Hurdles: UK segment earnings have been volatile. The Company is reliant on securitisation markets to expand its loan portfolio. A deterioration in borrower quality could adversely impact financial performance.
Investment View: TSM is a turnaround candidate positioned to benefit from improvements in UK consumer spending. We are attracted to recent management changes and view current valuations as undemanding. With pending capital management initiatives expected to drive interest, and UK retail sales growth reaching a nine-year high, we commence coverage with a ‘buy’ recommendation.
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