Hoist Finance returns

Poorly performing consumer loans are what Hoist Finance AB (STO:HOFI) acquires and manages from commercial banks and financial institutions. The Swedish financial services firm was de-listed in 2004. Now more than a decade later it has returned to be a listed company as the largest pan-European purchaser of debt originated by financial institutions. Trading in the shares commenced on the Nasdaq OMX Stockholm main list on March 25th 2015.

Hoist Finance has debt purchase and debt collecting activities for non-performing loans in eight European countries. It also has an on-line savings retail deposit operation called HoistSpar which has a total deposit base of some 11 billion SEK from 65 000 active accounts in Sweden. This activity is managed through wholly owned subsidiary Hoist Kredit AB. Some of those proceeds can then finance the loan acquisition side. Hoist Kredit has also issued three series of public notes quoted on Nasdaq OMX Stockholm.

In 2014 gross cash collections were about 2.5 billion SEK while the total carrying value of acquired loans stood at 8.6 billion SEK at the end of the year with 1570 active loan portfolios and about 6.5 million active claims. Total revenue has grown by 140 % in two years from 667 million SEK in 2012 to 1.6 billion plus in 2014 through big recent acquisitions. Margins have also improved with EBIT% rising from below 20% in 2012 to 31.9% in 2014. Earnings per share for last year on the 79,238,014 shares post IPO is about 2.27 SEK.

EBIT margin target is to reach above 40%. Common equity Tier 1 ratio CET1 is now around 10% with stated target to exceed 12%. Medium-term dividend distribution aim is 25-30% while longer term view is to pay about 50% of annual net profit as dividends. Hoist Finance competes with Lindorff, Intrum Justitia, EOS and Portfolio Recovery Associates (now owner of of Aktiv Kapital) as well as a number of smaller local players.

Initial Public Offering was expected to provide proceeds for further growth and raise the company profile. Company was issuing some shares and large shareholders were selling some of their shares in it. Implementation of Basel III regulations is expected to provide growth opportunities as banks reduce their balance sheets. The rationale for banks to sell non-performing loans at a considerable discount is multifaceted. Their capital ratio strengthens immediately, instant cash-in provides liquidity, level of risk is reduced and debt-collection is in general a non-core business.

British hedge fund Toscafund was on both sides of the offering. It bought into Hoist Finance in a 30 million GBP deal that netted it a 10% holding several months ago. Hence at that time Hoist Finance was valued 300 million GBP or 3.84 billion SEK at current exchange rate. With a further 750 million gross or about 675 million net coming in the offering, the market value after the IPO, which at 58 SEK per share was 4.55 billion, was rather close to cash received in the IPO plus earlier valuation. After days of trading and another post-IPO jump, the market value is now closer to 5.3 billion. The IPO range was 50-60 SEK and it was over-subscribed multiple times.

Toscafund had told the company it was intending purchase through different funds at least the same number of shares it was selling, but had made no such guarantee. In addition to Toscafund, other major institutional shareholders post IPO are Carve Capital AB (9%), Lancelot Asset Management AB (5%) and Zenit Asset Management AB (4%) Regarding other shareholders selling shares in the IPO, post-holdings were expected to be as follows; Beagle Investments (7.5%) Deciso AB (7%) and Costas Thoupos (4.2%)