Continued efforts to turn the business around

MyBucks 21 September 2020 Update
Download PDF German PDF Download

MyBucks

Continued efforts to turn the business around

Financials

Scale research report - Update

21 September 2020

Price

€0.32

Market cap

€24.5m

Share price graph

Share details

Code

MBC

Listing

Deutsche Börse Scale

Shares in issue

76.6m

Total assets at 30 June 2019

€208.1m

Business description

MyBucks is a Luxembourg fintech company listed in Frankfurt. It provides unsecured loans, banking solutions and insurance to customers and SMEs in four African countries. It uses AI technology to assess creditworthiness and is fully integrated with local banking systems.

Bull

Large target market, with mobile and internet penetration well ahead of traditional banking.

Gradual reduction of debt burden through disposal of banking and lending operations.

Reduction of corporate overheads.

Bear

Distressed financing situation.

Weak financial position of the largest shareholder, Ecsponent.

Reduction of equity stakes in banking entities.

Analyst

Milosz Papst

+44 (0) 20 3077 5700

Anna Dziadkowiec

+44 (0) 20 3077 5700

In June MyBucks (MBC) announced it had successfully completed its restructuring, conducting further business disposals to reduce its debt burden. This was accompanied by several management board changes, including the departure of Timothy Nuy (CEO) who was hired last year to lead the restructuring process. Meanwhile, MBC had postponed the publication of its interim results (now scheduled for September) while its major shareholder (Ecsponent) is facing financial challenges that are partially related to MBC’s underperformance. The latter could potentially limit further equity injections if MBC requires additional funding.

Asset disposals to reduce debt

In June 2020, MBC announced several asset disposals, which it highlights will result in a reduction of its debt to c €25m from c €108m at end-March 2019 (before it initiated the group’s debt restructuring). This includes the disposal of GetBucks, its subsidiary responsible for lending operations in Botswana based in Mauritius, to MHMK Group, which we understand remains MBC’s majority shareholder (directly and through its subsidiary, Ecsponent, a listed African private equity group, together with related parties). Moreover, MBC sold its entire equity stake in the Zambian bank and made a partial disposal of its deposit-taking microfinance institution in Mozambique (retaining 25%) to Xtenda Financial Holdings. Finally, MBC sold a 49% stake in its banking operations in Malawi to Mpatsa, a local Malawian investment holding company, which it highlights will ensure the bank will meet the local capital requirements by 31 December 2020. We understand it will also use c €6m of the sales proceeds to pay back its debt. All the transactions listed above were subject to regulatory approvals as of 23 June 2020.

Reduced exposure to banking operations

Historical data

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

06/16

38.9

0.9

(6.45)

0.0

N/A

N/A

06/17

55.8

(7.2)

(1.10)**

0.0

N/A

N/A

06/18

29.6*

(2.3)

(0.59)**

0.0

N/A

N/A

06/19

23.3*

(22.0)

(2.23)**

0.0

N/A

N/A

Source: MyBucks accounts. Note: *Net interest, fee and commission income. **From continuing operations.

These disposals may come as a surprise given the group intended to grow its banking operations in existing markets and migrate lending operations in Botswana to commercial banking licence as highlighted in the annual report published in December 2019. MBC also held a 49% stake in a commercial bank in Uganda and a 52% stake in a deposit-taking microfinance institution bank in Zimbabwe as of 23 June 2020. Zimbabwe represented c 40% of MBC’s post-tax profit in the banking segment in FY19 to 30 June 2019 (last available data). Here, the economic situation remains difficult amid hyperinflation (c 838% annual inflation rate in July 2020, as per the Zimbabwe National Statistics Agency).

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Changes to management board

The above-mentioned measures were accompanied by several changes to MBC’s board of directors since our last update note, which now largely includes individuals who previously held managerial positions at Ecsponent. The company highlights these changes are aimed at simplifying its governance structure and cost reductions. It also announced in June 2020 that Timothy Nuy will step down as CEO and will be replaced by Patrick Matute, a member of the board of directors at Ecsponent until early June 2020. The company highlights that this change follows the completion of the second phase of its financial restructuring. Timothy Nuy was MBC’s CEO until 2018, when he resigned from the position to start his own business (Finclusion Group) and was appointed MBC’s CEO again after the group initiated its restructuring in April 2019.

In parallel, Craig Lyons was appointed an active chairman of the board at MBC after he stepped down as the non-executive director at Ecsponent in June 2020. He replaced Dirk Harbecke, who joined MBC in January 2020. In July 2020, Tertius de Kock, Ecsponent’s CFO, joined MBC’s board of directors while Lutz Seebacher replaced Markus Schachner as a non-executive director in August 2020.

Major shareholder defaulting on its preference shares

We believe it is important to flag that Ecsponent, one of MBC’s major shareholders with a 42.97% stake at end-March 2020, has experienced some financial stress recently. We understand this may be at least partially due to the debt to equity conversions it agreed to as part of MBC’s restructuring. As a result, it defaulted on its preferred shares in February 2020 and, following a general meeting of shareholders held in May, class D and G preference shares were converted into hybrid preferential shares while the remaining classes were converted into ordinary shares. At the end of its last fiscal year (ended March 2020), Ecsponent had negative equity of c ZAR2.2bn (vs total assets of ZAR1.5bn) after it posted a ZAR2.0bn loss, largely as a result of MBC’s share price decline following the restructuring initiation.

On 8 September 2020, Ecsponent announced that, following an internal inquiry, its management (which was subject to some recent board changes) instituted an independent forensic investigation into possible misrepresentation on the merits and purpose of the company’s January 2018 ZAR100m investment in redeemable preference shares of VSS Financial Services Proprietary, a wholly owned subsidiary of MBC. Based on the recommendations it received from the internal forensic investigation and external legal counsel, Ecsponent has instructed its legal counsel to institute legal action against certain parties that it believes are potentially liable to the company for actions taken by them which have resulted in possible losses to Ecsponent. Importantly, the company’s claim against VSS was settled in full by MBC through the issue of MBC shares as part of the debt restructuring last year. Ecsponent’s board also recently instructed another forensic investigation into the use and distribution of funds from a US$7.5m third-party loan facility, but at this stage it is not clear if these funds were used for investment into MBC or any of its subsidiaries. In the latter case, c US$622k of interest and penalties on the facility were overdue as of 1 September 2020.

This suggests there is a certain risk that Ecsponent could refrain from further capital injections into MBC in the event it needs additional funding despite the completion of its second phase of restructuring. We note that MHMK (Ecsponent’s parent company) also has a direct holding in MBC and, together with its indirect holding through Ecsponent, has a majority stake in the company (c 63% according to Bloomberg data as of 15 September 2020). Note that, despite our efforts, the company has not provided any comments on this matter. Consequently, our analysis is based on the latest publicly available information and we are unaware of any further potential developments related to MBC at this stage.

General disclaimer and copyright

Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally.

Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues