The largely unexpected stumble in half-year earnings by Weaver Fintech, which has been on a growth tear for the past few years, might resonate ominously with some shareholders. There’s nothing quite as jolting as a high-growth stock suddenly decelerating. But the group’s controversial legacy might also make the market extra critical in assessing the interim setbacks.
Weaver’s first half was difficult, with the biggest pressure coming from traditional unsecured lending, where debtor costs surged 62%. Management is responding by continuing to rebalance the portfolio, directing less capital towards the areas under strain and more towards those delivering stronger growth and returns. The problem is that Weaver’s strongest performers, notably payments and other fee-based activities, are still too small to fully offset weaknesses elsewhere.
That imbalance becomes clearer when Weaver is broken down into its three main businesses. The first is the legacy HomeChoice retail operation, which has been scaled back and now contributes only about 6% of segmental trading profit before group costs. The second is FinChoice, the traditional fintech operation built around unsecured lending and insurance, which together still account for about 79% of fintech revenue. The third is PayJustNow, the payments and buy now, pay later (BNPL) platform in which the group acquired an 85% stake in 2021. It has rapidly emerged as Weaver’s main growth engine and now contributes about 21% of fintech revenue.
For older investors, the deterioration in Weaver’s lending book may revive unpleasant memories of a controversial chapter in the group’s history, even if today’s problems are nowhere near the scale of that earlier crisis. HomeChoice, the predecessor to today’s Weaver Fintech group, listed on the JSE in 1996 and raised about R220m during its time on the market. Its fortunes later deteriorated sharply as the credit book soured and losses mounted. In 2003, founder and then CEO Rick Garratt moved to take the company private, offering minority shareholders just 18c a share in a transaction that valued the entire business at only R25m. The proposal drew fierce opposition, particularly because the offer appeared to sit well below the underlying value of the debtors book and because Garratt, despite objections from minorities and pressure from the JSE, voted his controlling stake in favour of the delisting.
The episode became even more contentious in hindsight. HomeChoice recovered strongly once private and ultimately returned to the JSE in 2014 at a valuation measured in billions rather than millions. The Garratt family has also remained firmly in control. GFM Holdings, the family investment vehicle, still owns 70.2% of Weaver, while ADP II Holdings 3 Ltd, associated with private equity firm Development Partners International, holds a further 21.6%. Garratt’s daughter, Shirley Maltz, joined the board in 2014, took over as executive chair in 2020 and will become executive deputy chair on August 31. With the two dominant shareholders controlling more than 90% of the company, Weaver remains a tightly held stock, which helps explain its persistent lack of liquidity.
Turning back to the interim results, Weaver’s various businesses are pulling in very different directions. Group revenue rose 10% to R2.85bn for the six months to June, yet profit before tax fell 9% to R337m and headline earnings per share declined by about 10%. Strong growth in payments and solid progress in insurance were largely undone by a sharp deterioration in credit performance in the traditional FinChoice lending book.
Even so, the underlying growth in fintech was strong. Revenue increased 30% to R2.07bn, with payments revenue surging 88% to R432m and lending revenue still rising 21% despite management deliberately slowing new credit extension. Fee income climbed 43% to R833m and now accounts for just more than 40% of fintech revenue, up from 36.5% a year earlier.
CEO Sean Wibberley tells the FM that the push to diversify away from lending is not a response to the latest credit problems but a strategy Weaver began pursuing several years ago. “Our medium-term goal is to get fee income to 50% of fintech revenues,” he says.
The difficulty is that traditional lending remains large enough to do considerable damage when credit conditions deteriorate. Fintech debtor costs jumped 62% to just over R1bn in the half, while Weaver increased its impairment provision to 17.3% of the fintech receivables book from 14.7% in December.
PayJustNow, however, appears to have been far less affected. It offers two main instalment products: its core BNPL offering, which allows customers to split purchases into three interest-free instalments, and PayStretch, which charges interest and spreads repayments over 12 months. Together, PayJustNow receivables account for about 14% of the gross fintech book and have continued to perform well, with Weaver saying capital at risk on the core BNPL product remains below 2%. The real pressure has instead been concentrated in the much larger FinChoice lending book.
Wibberley says the deterioration was not primarily among the newest borrowers. Weaver has tightened new customer underwriting, and recent vintages are performing satisfactorily. Rather, the stress has emerged among longer-standing FinChoice customers, some of whom have begun to buckle under growing affordability pressures.
Not all of the deterioration was macroeconomic. Weaver also encountered banking and payment processing problems that caused some otherwise sound customers to miss repayments. Compounding this, FinChoice changed the way it used DebiCheck to track collections relating to customers’ pay cycles, and the new approach proved counterproductive. Wibberley concedes that Weaver’s change “didn’t work out so well”. It has since been reversed, while the group has increased its collections staff by 24%.
Management has responded aggressively. About R700m of available credit exposure was withdrawn from existing customers, acceptance rates were cut, lending terms were shortened and second-quarter disbursement growth was slowed to just 6%. There are early signs that these measures are working, with July roll rates — which measure the movement of borrowers from current into early arrears — improving by 13% across the lending portfolio.
Wibberley is sensibly not declaring victory. He cautions that the improvement is “not a trend, because it’s only been a month”, and that Weaver intends to maintain a conservative lending stance until there is clearer evidence that credit conditions have stabilised. That caution is also reflected in the board’s decision not to declare an interim dividend.
Fortunately, the balance sheet does not appear to be under immediate pressure. Weaver ended the period with R240m in cash and R860m in undrawn facilities. Management is also looking at ways to release capital tied up in property, which it says could generate about R400m.
The exciting part of Weaver remains PayJustNow, which is signing up 120,000–130,000 BNPL customers a month and says customers more than double their spending in their second year on the platform. PayStretch is growing even faster but from a lower base, with transaction volumes surging 286% in the half.
Despite its digital image, PayJustNow is not predominantly an online product. About 60% of gross merchandise value goes through physical tills. Clothing and white goods dominate among the larger merchants. Groceries remain a relatively small category because supermarkets operate on much thinner margins and therefore have less room to absorb BNPL merchant fees.
The biggest near-term opportunity is merchant expansion. Weaver now has about 3,850 merchants but plans to increase that to about 18,000 by year-end through integration with payment service providers. Weaver also plans to expand beyond traditional retail into the medical, travel and education sectors.
A greater number of merchants make PayJustNow more useful to consumers, while a larger customer base makes the platform more valuable to merchants. That two-sided network effect is arguably Weaver’s strongest potential competitive advantage. It also offers some protection against large retailers developing their own BNPL products. Groups such as Pepkor and TFG already lend directly, but Wibberley argues that PayJustNow offers something different: “We bring younger customers, we bring customers who don’t want to be beholden to the retailer or their credit systems, and they like the BNPL way. All their shopping is aggregated onto the phone. You can see all your previous purchases and manage your cash flow.”
Weaver is also launching a mobile virtual network operator brand in partnership with Cell C, offering discounted airtime and data while using rewards to encourage desirable customer behaviour, including maintaining insurance cover.
On potential corporate action, Wibberley says management is well aware of Weaver’s poor share liquidity and that options ranging from a merger to smaller acquisitions followed by a broader liquidity event are “all things on the table”.
At an earnings multiple of about 10, the valuation looks undemanding. The tiny free float means limited institutional ownership and research coverage, which can create opportunities for mispricing. The trade-off is that investors need to do more of their own homework, while poor liquidity can make it difficult to exit if the investment case goes wrong.
