Foragers Plan, page-24

Morning Fidosnos,

You mention Silver Chef as an equipment finance company that has done very well. It is an example of a blow up. Axsess Today, your other example, was incorporated 4 years ago and is yet to go through even one cycle. It’s not a relevant example of an equipment finance company that has performed well over time. There may be some out there, but I think you will find that a large percentage either do not survive, or have huge write downs of their loan books at some stage during the cycle.

You mention that Thorn has done the hard work of establishing the equipment finance business and it being profitable. In the debt space, the growth of a loan book is not the accomplishment, it is the growth of a high quality (on a risk adjusted basis) loan book that is the accomplishment.

If you were to give me $100m, I would be able to reach out to all the equipment finance brokers and say I can lend on the same terms as any other financiers but at a 1% better interest rate. That $100m would be deployed real quick and I’d be profitable – but is this a smart deployment of capital?

Consumer finance, whilst not being able to deploy the capital it used to, is still a highly attractive business. If shareholders received the current market cap back in a special dividend and were left with consumer finance, a profitable but shrinking business that continued to spit off profits and capital it could not deploy, my base case showed TGA would be worth $1.60 today (even after including an allowance for a $25m payout in the class action).

If consumer finance was to surprise to the upside and be able to increase its rental book with the same ROA, then we’re looking at a $2.50+ share price.