Homechoice International (HiL) has evolved from a catalogue retailer catering to lower- and middle-income households into a diversified fintech operator with ambitions to be recognised as “private bankers to the mass market”.
In less than a decade HiL has moved from earning the bulk of its keep from specialist retail to generating 92% of operating profit from Weaver Fintech’s digital credit, insurance, payments and merchant services offerings.
The one-time snail-mail catalogue retailer says 84% of its transactions and 57% of its revenue are now digitally based.
In the latest reporting period to end-December, Weaver’s revenue increased 30.5% to R1.9bn, and this was converted into a 42% increase in operating profit to R622m (at a margin of 33%).
HiL said Weaver’s customer base stood at 1.6-million — an eightfold increase since 2019 — with an 84% retention rate of active loan customers. Repeat customer business accounted for 86% of disbursements and 75% of gross merchant value (GMV).
Even more impressive is that recently acquired PayJustNow saw GMV more than doubling to R1.5bn. This generated buy-now-pay-later fees of R81m (2022: R41m). Since its establishment three years ago, PayJustNow has digitally acquired nearly 1.3-million customers, with 100% growth in 2023. HiL said recurring customers account for 75% of total transactions.
But the market is yet to be seduced. Despite HiL delivering double-digit profit growth, the share price is down more than 40% over five years. With a market cap of R2.35bn, the group trades on a historic p:e of 7.25 and a yield of 6.8%. The multiple is more akin to fashion retailers Truworths and TFG than a fintech play. The yield is hardly reflective of a high-growth company.
One possibly negative factor is that more than 90% of its shares are held by two entities: GFM Holdings (the Garratt family) owns 70% and UK-based Development Partners International owns about 22%. A chunk is owned by management, which means less than 5% is in the free float.
As a retailer HiL has always sold largely on credit — though these days the old catalogue has been displaced by showrooms, sales agents and a contact centre. The group’s ecosystem, though, is primed for cross-selling an array of financial products such as personal loans, insurance products and payment options (it already sells data, airtime and electricity value-added services). The longer-term plan is to augment lending income with more fee-based income and grow the array of products such as funeral cover.
Increasingly we see ourselves as a fintech business, and that’s where all our growth is coming from
— Sean Wibberley
“Increasingly we see ourselves as a fintech business, and that’s where all our growth is coming from,” says Sean Wibberley, CEO of Finchoice and Weaver. “My philosophy that I’ve engendered in the team is I want Finchoice to be seen as the private bankers to the mass market.”
Of HiL’s 2-million customers, about 60% are millennials or Gen Z.
Most importantly, the group is cash generative. A substantial R8.5bn was collected from customers in the reporting period, with cash generated by operations topping R256m.
Any surge in demand for HiL shares would probably be driven by a recognition of the group’s ability to leverage its extensive client data to sell more financial services products and insurance options. In addition to its ability to capture data and generate cash from a digital platform, HiL “has trust equity built over many years”, says Wibberley.
He says digital integration means customers can move with ease across different products, and the cost of acquisition of new products is less. Where historically customers might have been only in the funeral market, now they might add personal accident cover or health benefits.
Wibberley says the heritage of the business remains the Homechoice retail brand — which has been around for more than 35 years. The fintech side was launched 18 years ago, offering personal loans and then insurance to credit-proven customers. And just over three years ago HiL bought 85% of PayJustNow, the largest buy-now-pay-later business in the country.
Older readers might recall that HiL was founded by Rick Garratt in 1985, and was briefly listed on the JSE in the late 1990s before a controversial buyout of minority shareholders and delisting. Wibberley and Merwe Scholtz started Finchoice in 2006. Garratt’s daughter Shirley Maltz is executive chair of the group, while Scholtz left years ago and subsequently became CEO of Capfin, starting that business in the Pepkor group.
With sizeable lending and insurance books as well as the fast-growing PayJustNow, HiL is focusing on winning more customers. It has moved away from telephone interaction to a self-service app.
Wibberley notes: “We’re a personal lender and we lend to the middle-income mass market. Our magic bullet — besides the fact that we’re extremely digital-focused and really understand the consumer from a user experience standpoint — is that the Homechoice business built up a lot of brand equity for consumers purchasing wares at a distance. So, when Finchoice was launched we had a lot of equity behind it and had trust which we engendered into our user experience.”
Wibberley says a big advantage is that HiL can establish valuable consumer behaviour patterns from its existing retail client base. “Because of the buying behaviour within Homechoice we know how a customer is spending, where she’s purchasing, what she’s purchasing and her repayment behaviour. This [data] we’re able to use in the Finchoice business to offer appropriate credit to the consumer … which competitors aren’t able to access.”
The upside from cross-selling is tantalising. Wibberley says a consumer with one Weaver product has an average annual revenue per user of just over R1,100. “But if that same consumer takes a second product it jumps up materially to over R9,000, and a third product to over R13,000 … Once the consumer is in the digital ecosystem … they then are exhibited other products using data to personalise the offer. The customer is seeing the right product at the right time and then being able to self-serve obtaining it.”
Wibberley says the group won’t serve up a loan offer to a customer “if we don’t think it’s the right product or is not affordable based on what we know about the customer”.
PayJustNow CEO Craig Newborn says the intention is to launch other payment mechanisms that will make the payment process easier and simpler — even for a cup of coffee or a utilities bill. “It’s always on a ‘pull experience’. The customer is the one requesting the information. We’re not doing the cold calls, it’s completely digital.”
It’s always on a ‘pull experience’. The customer is the one requesting the information. We’re not doing the cold calls, it’s completely digital
— Craig Newborn
One of the new products being launched is a marketing service for businesses, says Newborn, which would facilitate communication between a company or brand and PayJustNow customers. PayJustNow has more than 2,000 merchants across the country and is looking at longer payment plans … albeit with fees and interest.
Interestingly, about a third of all transactions happen outside normal working hours.
Independent analyst Chris Gilmour says he expects HiL will face competition from Amazon when it launches in South Africa. But he concedes it’s a different model, with a financing side.
Gilmour says financial services has given the company a boost, but the small free float dampens trade, and it’s a complicated structure. “It’s never been an institutional stock, and if institutions can’t have a reasonable portion they’re not interested. They don’t like tightly held family-controlled stocks. That, plus the fact that it’s [listed] in general retailers, and retailers aren’t exactly flavour of the month and won’t be for a while.”
Wibberley acknowledges the HiL share is tightly held and fosters little trade — but adds: “We are thinking of future plans.”
Newborn says the group is focused on keeping its head down and delivering significant returns for shareholders. “For us the focus is on delivering value to shareholders and the rerate will then happen.”
Perhaps a first step in gaining better market recognition would be a name change that better reflects the dominant fintech angle … and perhaps a transfer from the JSE’s retail sector to financial, or even a listing on an international bourse.
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