The JSE is not known for its abundance of high quality technology businesses but online retailer Homechoice International PLC is doing some interesting things and could at some point be re-classified as a technology business or Fintech play.
Before we go into some of the detail, let’s look at some of the financial metrics for the business.
– Established in 1985, the company has a solid long-term trading history
– It has operations in South Africa and Mauritius
– It has a market capitalisation of R3.2bn but is highly illiquid averaging barely 2000 shares traded per day over the last 30 days
– During the COVID-19 pandemic, the company delivered R270m in operating profit (Down 60% from the previous financial year)
– The company was sitting on a cash pile of about R480m
– The share is trading on a PE of 16 times earnings and offers a dividend yield of around 1.57% … but based on the cash generation abilities of the business, you might find this ticking higher in 2022. (The company has historically been a good payer)
If you will remember, we recently hosted them on the “Meet The Management” series and they gave us some insights into their strategy and what they were looking to achieve:
So what is Homechoice?
In a nutshell it comprises of 2 entities:
– Homechoice which is an online retailer which generates about 71% of its revenue and 30% of its profits (Taking into consideration COVID-19)
– Weaver Fintech – a digital fintech offering personalised lending and insurance which is now the primary contributor to the groups profits
The below is an infographic which is regularly updated in the Homechoice financial results commentary but what is quite clear is that this is a team which has managed to not only identify and ring-fence a digital audience but also monetise its strong base:
The lending business
Many people are familiar with the online retail portion in the Homechoice stable but are less familiar with the lending side of the operations.
The below is an excerpt from the financial results which gives you a sense of the type of loans the company was granting and the typical credit profile across both sides of the business – with a specific focus on the response to the COVID-19 lockdowns in 2020. (IE the base in which it would be re-building)
The move into Fintech
The company recently released a SENS announcement indicating this increased focus on consumer fintech and through the Weaver business would be acquiring buying an 85% stake in PayJustNow which is described as “the fastest growing Buy Now, Pay Later” business in Southern Africa.
They highlighted the cross selling opportunities which present themselves as they are able to sell across a base of 410 000 digital clients and 170 000 digital wallets.
The announcement goes on to say:
“Analysts predict consumers globally will make nearly $100 billion in retail purchases using BNPL in 2021, up from $24 billion in 2020 and $20 billion in 2019. BNPL is one of the fastest-growing segments in the booming payments space, with significant consumer appeal and adoption and the ability to drive improved conversion and high sales for merchants. The fintech market share in South Africa is expected to triple by 2023, with payments and lending representing 49% of Fintech services.”
Homechoice is not a share which appears on most peoples radars due to its lack of liquidity and perception that it is primarily an online retailer competing in a crowded marketplace.
However if you view this business through the lens of a fast-growing, cash-generative (and profitable) fintech offering, it may be worth looking at for your portfolios.