Fintech meets Africa
When people think of “fintech hotspots”, they usually think of Silicon Valley first. Then maybe of New York, and also Berlin and London might come to one’s mind. But Africa?
Need for financial inclusion is driving Africa’s fintech scene
However, the worlds largest continent is the home of some impressive fintech companies. The basic reason is simple: While in the developed world fintech innovations are mainly innovations in convenience, in Africa they dramatically and fundamentally improve people’s daily lives. Lack of financial inclusion is one of the continent’s biggest challenges, and one of the greatest opportunities for disruptive entrepreneurs. No wonder that almost a third of funding raised by African startups in 2017 was in the fintech sector, as investors bet on consumers turning to more formal financial services in a region where just 17% of the population have banking accounts at the moment.
Venture funding for African startups jumped by 51% to $195 million in 2017, according to a report from Disrupt Africa. Fintech was the biggest attraction for investors, the report says, with 45 startups raising one-third of total funding. The success of mobile money technology like M-Pesa in Kenya and across East Africa has long shown the potential for other underserved markets. M-Pesa’s success is likely also behind for the increasing presence of mobile networks in the African financial sectors and the convergence of the two sectors.
MyBucks – seamless financial services through technology
One of the most successful examples is South Africa/Luxembourg based MyBucks. MyBucks delivers seamless financial services through technology. Through its brands GetBucks and GetSure it offers impact loans, unsecured consumer loans, banking solutions as well as insurance products. MyBucks has experienced exponential growth since its inception in 2011 and today has operations in twelve African countries, and additionally in Poland, Spain and Australia. MyBucks aims to ensure that its product offering is accessible, simple and trustworthy, in comparison to traditional, non-technological methods, ultimately working towards enhancing the benefits to the customer. The MyBucks’ product offering enables customers to manage their financial affairs easily and conveniently.
Strong growth ahead
MyBucks had been very acquisitive in 2016, taking over the entire banking network of the US NGO “Opportunity International” – a step which shows now great results, but had burdened MyBucks’ numbers in the business year 2016/2017 (MyBucks’ business year runs from July – June). Latest financial statements for the period between July 1st, 2017 and December 31, 2017 (first half of business year) show an impressive turnaround: The Company within the first 6 months recorded an operating profit (EBIT) of EUR 9.7m for the half-year, almost matching full last year’s EUR 10.9m for the twelve-month period which ended on June 30th 2017. All indicators point to continued growth and increased profitability going forward. The Group has recorded EUR 29m in revenues for the first half year and shown an improvement in Impairment/Revenue-ratio from 22.4% to 21.4%. A significant driver behind the increase in profitability was the steep improvement in operational cost ratio from 68.3% in the previous financial year to 60.3% for the first half of this financial year.
Driver behind the profitability have especially been the banks, including those that MyBucks had acquired from Opportunity International, recording operating profit of EUR 8.2m for the half-year relative to EUR 10.3m for the twelve months ended 30 June 2017. This shows that the restructuring and improvement measures, which previously burdened the full year 2016/2017, now bear fruit.
Africa still has its challenges
But success does not come without challenges. In order to lend to its millions of retail clients, MyBucks needs to refinance itself. For that, MyBucks has refinancing lines with international banks and hedge funds. However, MyBucks is still too small and its own refinancing costs are too high. In that context, MyBucks also highlights the general problem the continent still has: Africa is still considered a challenging place to do business and invest in by many investors and banks, especially after the Steinhoff scandal in South Africa. Hence financing costs – in case financing is available at all – both for debt and equity are high.
Refinancing is key
MyBucks-management at the moment is focusing on both increasing refinancing volumes and decreasing refinancing costs. After a successful capital increase with the strong backing of MyBucks’ key shareholders, they have been able to announce a first, big win: The hard-currency refinancing rate has dropped in average from c. 21% to 15% per annum. This change leads to an annualised pro-forma cost saving of EUR 6m that will be partially reflected in the current financial year ending in June 2018 and then will be fully effective in the next full financial year 2018/2019. MyBucks intends to raise significant more money with various debt instruments like straight bonds and convertibles in the next months ahead, which should further improve revenues and earnings. German leading mid-market investment bank Hauck & Aufhaeuser, which also had been the lead bank of MyBucks’ IPO in 2016, sees an EBIT-target for the business year 2017/2018 of EUR 20m and for 2018/2019 of EURO 42 million.
It’s easy to invest in MyBucks
Interestingly, MyBucks is listed on the Frankfurt Stock Exchange (ISIN: LU1404975507, Ticker Symbol: MBC:GR) and hence offers investors an easy access to the opportunities of the African fintech market. This could also be a role model for other African tech companies, as the continent has not produced a leading onshore stock market yet. Based on the positive outlook, Hauck & Aufhaeuser see a mid-term price target of EUR 25,30, which is approx. 100% upside from today’s share price of EUR 12.50.
