Solvar Limited's Strategic Update and Financial Guidance Revision
SVR (SVR) Share Update July 2024 Monday 22nd
Solvar Limited Announces Strategic Shift and Revised Financial Guidance
Solvar Limited (ASX: SVR), a leading provider of automotive finance, has announced a significant strategic update and revised financial guidance for the fiscal year ending June 30, 2024.
Instant Summary:
- Solvar to focus on growing its Australian operations and commercial lending.
- Cease new lending in New Zealand from August 2024.
- Revised guidance for normalised NPAT to $27-$30 million.
- Intention to declare a final dividend of 5.0 cents per share, fully franked.
Strategic Shift
Solvar Limited has decided to concentrate its efforts on expanding its operations in Australia. This includes creating a dedicated commercial lending business unit to better serve the Australian market. The company will cease new lending in New Zealand starting from August 2024, redirecting capital from New Zealand to bolster its Australian operations.
The decision to focus on Australia comes as the company sees better growth opportunities in the Australian market compared to the challenging macroeconomic conditions in New Zealand. Solvar's commercial lending book, which is originated through Automotive Financial Services (AFS), has grown to represent $54 million or 28% of AFS's overall loan book as of June 30, 2024.
Financial Guidance
Solvar has revised the lower end of its guidance range for normalised Net Profit after Tax (NPAT) to between $27-$30 million. This adjustment accounts for legal and professional fees associated with regulatory-related legal action, impairment of goodwill and intangibles associated with Go Car Finance, and other one-off items. Additionally, the company intends to declare a final dividend of 5.0 cents per share, fully franked.
New Zealand Operations
Go Car Finance (GCF) has been a profitable part of Solvar's business, contributing more than $90 million in cumulative EBITDA since its acquisition in 2019. However, due to the subdued economic outlook in New Zealand and higher relative funding costs, Solvar has decided to cease new lending in New Zealand. The company will continue to collect and service outstanding loans to minimize disruption to customers and staff.
As a result of this decision, Solvar expects to impair and write down $9.2 million of goodwill and intangibles associated with GCF. Despite this, GCF is anticipated to contribute positively to Group earnings during FY25. As of June 30, 2024, the GCF loan book stood at $139.2 million with associated drawn wholesale funding of $73.0 million.
Regulatory Action
There are no material developments regarding ongoing legal actions with the Australian Securities and Investments Commission and the Commerce Commission of New Zealand. Solvar will provide updates on regulatory matters when there is a material change in the state of affairs.
All figures in this announcement are in Australian dollars, preliminary, and subject to audit review.
The strategic shift to focus on the Australian market and the creation of a dedicated commercial lending unit could position Solvar for stronger growth in a more stable economic environment. The cessation of new lending in New Zealand, while a prudent move given the economic conditions, may have a short-term negative impact due to the write-down of goodwill and intangibles. However, the revised financial guidance and the intention to declare a final dividend are positive signals to investors.
Investor Reaction:
Analysts have noted that Solvar's focus on the Australian market is a strategic move that could yield better growth opportunities. Investor reactions have been mixed, with some expressing concerns over the cessation of New Zealand operations, while others are optimistic about the company's revised financial guidance and dividend declaration.
Conclusion:
Investors should closely monitor Solvar's strategic execution in the Australian market and the impact of ceasing new lending in New Zealand. The revised financial guidance and dividend declaration are positive indicators, but the long-term success will depend on how effectively Solvar can capitalize on the growth opportunities in Australia.