FSA Group's debt extended
Recommendation
FSA Group has announced that Westpac has agreed to renew its $375m non-recourse loan to the company until 15 October 2021. The facility, along with a $30m non-recourse mezzanine facility provided by a separate lender, backs FSA's subprime home loan business. The current loan pool is just over $380m.
Refinancing risk is ever-present for FSA, so we're pleased to see Westpac's support has been extended for another two years. Management has said that shareholders should expect earnings growth of 5-15% a year in the medium term. The stock is only suitable for risk-tolerant investors but we think it's undervalued with a price-earnings ratio of just 9 and fully franked dividend yield of 5.6%. We're sticking with SPECULATIVE BUY.
Note: With several substantial shareholders, FSA Group's stock is highly illiquid with a large spread between bid and offer prices. To ensure you aren't caught overpaying, it's important that your buy orders have a limit price and are not made 'At Market'.
Disclosure: The author owns shares in FSA Group.