HomeChoice International, which sells homeware and loan products, says its digital operating model and customer loyalty paid off with a profit jump in its half-year to end-June, enabling the fintech group to raise its interim dividend more than a third.
Interim group revenue rose 4% to R1.76bn, the company said on Tuesday, but operating profit surged 29.5% to R228m. There was a jump in loans with costs kept under control by a business model less reliant on a large asset footprint.
The company hiked its dividend 36.2% to 64c per share for a handout of about R68m. It had R192m in cash on hand at the end of June.
HomeChoice International, valued at R2.88bn on the JSE, sells appliances and electronics through call centres and direct marketing on credit, mostly to customers with an average monthly income of about R13,000, but is increasingly focusing on digital lending. Its financial services division, FinChoice, offers unsecured lending via a zero-rated mobile app, which means the company picks up the users’ data costs.
The business that was primarily a direct marketing retail business with women selling bedding, blankets and kettles advertised in catalogues to friends is increasingly growing its fintech lending and insurance business run by an entirely separate team.
Their operating margin in retail is 3.6%, while in fintech it is nearly 30%. The company issued R2.1bn in loans in the half-year to June.
HomeChoice International, which closed little changed at R27 on Tuesday, is an illiquid stock despite its growing fintech business. On some days, it is not traded at all.
Many small caps on the JSE struggle to raise funds, with the vast majority of capital flowing to the top 100 companies — driving delistings, with as many as 200 stocks languishing with little interest from institutional investors.
HomeChoice International chair Shirley Maltz said improving trading volumes or liquidity would require shareholders to have a rights issue or issue further shares. But major shareholders were not keen as these actions will further dilute shares and weaken their value when they think the business is already undervalued.
But she said institutional investors do not want to buy into the business because they are not comfortable with the low liquidity. “So we’re kind of stuck between a rock and a hard place at the moment.
“I have just got my head down and am focusing on growing profitability.”
Just less than three-quarters of the group’s transactions are digital, from 58% in the previous year, and it is looking to capture market share in the unsecured lending market dominated by players such as Capitec Bank. It uses social media platforms such as Facebook and Instagram to market its product range.
The group’s fintech business operating profit leapt 28.9% to R205m, 84% of the group total. Loan disbursements rose about a third to R2.1bn; HomeChoice saying it had grown market share in the short-term and unsecured market, to 1.27% in the first quarter, from 0.95% in the prior year.
Customer loyalty continued to be high, the group said, with 86% of loan disbursements to existing customers.
Maltz said she was pleased with the tenfold growth of the buy-now, pay-later product bought during hard lockdown. The service helps consumers buy items, usually clothing, at retailers in three instalments without interest. Its popularity is rising at retailers globally and online.
Unlike clothing accounts run by external lenders that charge a consumer interest, in this case the lender earns commission from the retailer with the consumer making one upfront payment in store. HomeChoice International said merchants using their products experienced a 40% rise in customers’ average spend and a 33% improvement in frequency.
The business had just under 30,000 customers when it bought it in 2020 and now has more than 300,000. The product is available to 1,541 merchants and found in more than 3,650 individual stores or websites.
Revenue of goods sold through this product grew to R224m from R58m in the previous period. TymeBank has a similar product available at some TFG-owned stores.
Retail revenue, reflecting homeware and bedding sold via catalogue and through direct marketing, fell 9.6% to R1.08bn, reflecting a tightening of credit criteria in the first quarter, but operating profit in this business still climbed 18.8% to R38m, amid lower trading expenses and an improved debtors book.
Maltz said HomeChoice tightened credit-granting criteria for retail homeware customers in January and again in June as it was unhappy with rising levels of bad debt.
The firm, which is trying to attract homeware shoppers through online advertising and social media, said its digital sales channel contribution now stood at 30% from 25% before, and is expected to “continue to increase with the acquisition of new digital-savvy customers”.
Customers are becoming more digital in shopping and using digital self-service functionality, the group said. It has 1.2-million Facebook and Instagram followers and 64,000 HomeChoice App users.
“Visitor traffic is up 10% and we have seen encouraging improvement in first-time online shoppers.”
With Andries Mahlangu
Updated: August 16 2022
This article has been updated with new information
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