Thorn settles with ASIC
Recommendation
After a torrid 2017, Thorn has started 2018 with positive news by settling ASIC's investigation into its lending practices.
Thorn will pay $6.1m to disaffected customers and a $2m civil penalty to ASIC, with the latter conditional upon Federal Court approval, which is expected before 30 June.
Importantly, Thorn has already provisioned for this amount in its accounts, so the settlement won't impact its earnings this year (although cash on its balance sheet will reduce by an equal amount).
While ASIC's investigation has left a lingering smell, Thorn has heeded Winston Churchill's advice by not letting a good crisis go to waste. Several procedural improvements have been implemented, such as a new online credit and application system as well as a revised claims management and internal dispute resolution process, that should make the company stronger in the future.
This follows another positive announcement three days before Christmas that Thorn had made the $26.1m progressive payment required on its corporate debt facility. A capital raising would have been a near certainty if this payment wasn't made, as we discussed in Thorn Group: Interim result 2018.
Now, with six months until the next $20m repayment is due (and nine months until the final $20m repayment), the risk of a capital raising has greatly reduced. Thorn has numerous options up its sleeve – such as slowing equipment finance origination growth or selling receivables into the securitised warehouse or to third parties – the amounts are manageable, and it has time on its side.
We're maintaining our recommendation and price guide. SPECULATIVE BUY.