ThinkSmart's divestment is smart thinking

Consumer financing solutions group ThinkSmart (TSM) is unlocking millions of dollars worth of shareholder value by selling its Australian and New Zealand operations for nearly the market value of the company.

The deal will fetch the company $43 million when ThinkSmart’s market capitalisation stood at $45.5 million as of yesterday’s close.

Proceeds from the sale to its local rival Flexigroup (FXL) will be used to fund a special dividend and capital return of 11 cents a share. This compares very nicely to the stock’s last traded price of 28 cents a share, and is even more impressive if you include the franking credit from the special dividend component of the distribution, which is worth an additional 1.5 cents or so.

The divestment will allow ThinkSmart to fully focus on its United Kingdom business as the company sees that market as its main growth driver. The economic recovery in the UK is the envy of Europe and ThinkSmart is well positioned to benefit from this as it has inked deals with a few major retailers in that country to offer interest free financing to shoppers.

We have flagged ThinkSmart’s shift in focus to the UK a month ago, and believe today’s news will help spark a re-rating of the company.

Management is flagging a net profit of around $3 million for 2014 (its financial year end is end December) excluding the $16 million pre-tax profit is expects to book from the sale of the Australian and New Zealand assets.

ThinkSmart also plans to buy back 10% of its shares on market. Analysts polled on Bloomberg were expecting ThinkSmart to post a $5.3 million normalised net profit for 2014 before today’s news.

We first highlighted ThinkSmart as a turnaround opportunity in February. The stock, which is part of the Uncapped 100, opened 42.9% higher this morning at 40 cents.