Citi Research analysts Tan Yong Hong and Robert Kong are recommending investors “sell” FinTech company iFast, citing high risk due to share price volatility and the company’s announcement to acquire a UK bank.
“The acquisition will be immediately dilutive to earnings per share (EPS), as BFC Bank is loss-making and fundraising via debt/capital raise is required,” write Tan and Kong in a Jan 8 note.
The analysts have a target price of $7.50 for the stock, down from its Jan 7 close price of $7.85.
BFC Bank has been loss-making since operations began in 2017. BFC Bank exited the corporate banking business in 2020 citing adjustments in business strategy and risk appetite.
“In the longer term, management thinks that the acquisition should help to acquire banking licenses in other jurisdictions and provide value-added services to clients. We see possible execution risk given the lack of track record in managing a bank and ongoing commitment to a major project in Hong Kong,” add Tan and Kong.
On Jan 7, iFast announced the proposed $45.9 million cash acquisition of an 85% stake in BFC Bank at 1.62 time price-to-book ratio (P/B), with 15% to be held by the incoming CEO.
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BFC Bank is a fully licensed UK bank offering payment and remittance services, wholesale banknote services and deposits.
The total investment amount of $73.4 million includes the $45.9 million acquisition amount and $27.5 million capital injection.
Assuming a closing price of $7.85 per share and the acquisition being fully funded by equity, the acquisition would dilute EPS by 3.1%, write the analysts.
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The Edge Singapore understands that iFast is raising $75 million by issuing 10 million new shares at a discount of between 4.5% and 7% from its last close of $7.85.
In documents seen by The Edge Singapore, the wealth management FinTech platform's base offer size is between 10.0 million and 10.3 million new shares, or some 3.6%-3.7% of existing outstanding shares, offered at between $7.30 and $7.50 per share.
Other research houses view the acquisition more favourably. UBS Global Research analyst Aakash Rawat notes that iFast has nursed ambitions to attain a banking licence for several years now, following unsuccessful attempts in Singapore and Hong Kong.
“This can help accelerate the growth in the core wealth management business. [Its application for a] Malaysian digital bank licence outcome should be known in 1Q2022 (possibly by end-January),” writes Rawat in a Jan 7 note.
“The UK bank acquisition can increase the chances of acquiring a banking licence in Asia in the medium term. Current plans to grow deposits at BFC leveraging the Asian customer base doesn’t suggest material impact on earnings in the near term.”
Rawat is maintaining “buy” on iFast with a target price of $11. “We see this development as a medium-term positive.”
Meanwhile, DBS Group Research analyst Ling Lee Keng is maintaining “buy” on iFast but with a trimmed target price of $11.37 from $12.93 previously.
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Ling points to start-up losses expected in 2022 and 2023. “The whole integration process is expected to take about 12 to 18 months. Having a digital bank would help iFast to create a global seamless FinTech ecosystem but in the near term, some start-up losses and integration costs are expected. The group targets to achieve profitability for BFC Bank in three years’ time, likely in 2025.”
“Assuming completion by mid-2022 and a 50:50 cash and debt funding, we have reduced FY2022F and FY2023F earnings by 21%/11%, with higher integration costs and start-up losses expected in FY2022F,” writes Ling in a Jan 10 note.
Similarly, UOB Kay Hian Research analyst Clement Ho is maintaining "buy" on iFast, though with a lowered target price of $9.75 from $11.50 previously. The new target price represents a 24.1% upside.
"Over the longer term, BFC could provide leverage and product financing for iFast’s customers, which will in turn improve interest income for the ecosystem. Taking a cue from Charles Schwab, which also has a banking licence, net interest revenue accounted for 52% of the business in 2020 (2019: 61%, 1HFY2021: 42%). This compares to iFast which does not even provide the breakdown of net interest income due to its insignificance," notes Ho in a Jan 13 note.
Shares in iFast closed at $7.85 on Jan 7. As at 10.45am on Jan 13, shares in iFast are trading 4 cents higher, or 0.51% up, at $7.90.
Photo: Albert Chua / The Edge Singapore
