Stocks Down Under Interview – Neil Sheather

In this interview Neil Sheather, CEO discusses the various growth drivers at Finexia, including StayCo. and Creative Capital.

>

>Interview with MD Neil Sheather from Finexia Financial Group (ASX:FNX) from Pitt Street Research on Vimeo.

Visit Stocks Down Under here

Transcription

Stuart: Hello and welcome to Stocks Down Under. My name is Stuart Roberts and I’m one of the cofounders of that publication. And joining me on Tuesday, the 8th of March, 2022 from the Queensland Gold Coast is Mr. Neil Sheather, who’s the CEO of Finexia Securities ASX:FNX. Neil, good afternoon.

Neil: Good afternoon, Stuart. Thanks for hosting me today.

Stuart: Pleasure. Well, perhaps not such a pleasure for you. Southeast Queensland has been lashed by floods and rains lately.

Neil: It’s been battered, it’s been relentless. We’re glad to see the end of it.

Stuart: Right. But it but it’s Queensland, which means you’ll come out of it quickly.

Neil: It’s a trade-up here. We’re resilient.

Stuart: Now, Finexia recently reported its half-yearly result. And it was a good one in terms of $2.6 million in [inaudible 00:01:02.454] for the half. What was driving that?

Neil: The key contributors…it was a pleasing result. We’re proud of that result. And it’s certainly not resting on our laurels. But the key drivers were some overall growth in our loan book, we saw some continued growth in our prime broking and equities businesses, which was very pleasing, and then probably the most pleasing aspect was in that six months, we launched our flagship wholesale fund, the Finexia Direct Accommodation Income Fund, otherwise known as Stakeout, and that certainly has performed, you know, to our expectations or, in fact, beyond our expectation and it certainly was key in getting us to that $2.6 million net profit.

Stuart: And you’ve got even more adventurous, you’re flagging for the full year, FY ’22, $9 million in revenue, and a little over $3 million at the EBIT line. So it looks like the second half is coming together nicely as well.

Neil: Absolutely, I think it’s more of the same, Stuart. Our estimates are to arrive at a $9.5 million top-line revenue. And that should lead us to about $3.8 million in EBIT for the full year, which, you know, for a small app, it’s been a great result. And as of this year, you know, we’ve embarked on a few new projects, and we’re starting to evolve into a serious business, and hence why we’re giving some guidance now and will continue to do so.

Stuart: There’s all sorts of smaller organizations that do what you do in terms of corporate advisory, provision of debt, etc. What’s the big competitive advantage that Finexia brings?

Neil: Yeah, good question, Stuart. So we feel that our competitive advantage is that we are sized appropriately that we can be nimble and agile, and we tailor the solution to meet the client’s needs. And we pride ourselves on that. So we are very solutions-focused and client-focused. So we’re matching a solution with a client, I think, you know, it’s not a cookie-cutter approach with Finexia.

Stuart: Yep. So we talked before about the Accommodation Fund, and obviously, that’s been a contributor to earnings this year. But there hasn’t been too much tourism activity coming into the state of Queensland in the period you’ve had the fund live. How did you go through the summer?

Neil: Queensland opened its borders in mid-December. And like the forward bookings, exceeded certainly our forecasts. And obviously, those forecasts were made, you know, in the midst of COVID and a lot of restrictions in movements domestically. So the summer was beyond our expectations. And, you know, the forward bookings look fantastic going right through, certainly for the medium term anyway. So, you know, the fund itself, and the underlying businesses have, you know, performed beyond our expectation.

Stuart: Now, in October 2020, you announced the acquisition of Creative Capital. That brings you into the commercial lending space. Now, there’s been some interesting moves in recent years in commercial lending, including the emergence of Judo Bank. What does Creative Capital bring to the in-large Finexia operation?

Neil: Well, the rationale behind how the acquisition of Creative Capital was really to diversify our revenue and sort of smooth that out. We, historically, have been an equities-centric business. So very much leveraged to the vagaries of the share market. And basically, you know, as I said that the motivation was to smooth it out and to broaden our appeal as a diversified financial services firm. Acquiring Creative Capital was the target, so they had an excellent client book and they had some excellent operatives. Their key executives that came along with the acquisition, you know, are experts in their field and they bought that expertise to the table at Finexia, sorry.

Stuart: Finexia has started to get more active in terms of the equity capital markets area, and recently, you were preparing the IPO of Dragonfly Biosciences, which is a U.K.-based cannabis medicine company. Now, that IPO recently got pulled, but your intention is to bring it back to the market soon. Am I right?

Neil: That’s correct, Stuart. Yeah. Dragonfly Biosciences is an exciting business. But the reason that the IPO has been deferred or pulled is that during that whole IPO process and the sales process, we received some pretty strong feedback from certain quarters and certainly some of the cornerstone investors that were advising the company to reassess the valuation. And the company has heeded that advice and we’re currently in the process of restructuring the deal. And with that will come a revaluation to a more realistic price.

Stuart: Yeah, looking forward to reading the prospectus for that one. It’s a great year for doing cannabis medicine, once the market gets through these present uncertainties we’re going through.

Neil: Yes. We’ve seen that in the revision mirror for sure.

Stuart: Sure. Now, one of the interesting things I noted in your recent communications is you’ve been talking about how you can lower the cost of capital. What kinds of solutions are you looking into for Finexia?

Neil: Yeah, okay. Good question, Stuart. Thank you. It is an important part of our business as we grow the loan book. Obviously, our net interest margin is an important measure for us. So at the moment, the management, we’re seeking to lower that risk-adjusted cost of capital. And I think that will be by way of securing it, you know, wholesale funding loan, or warehouse-type facility. Now, we’re talking to a number of providers, both onshore domestically and offshore at the present. And hopefully, we should be able to secure that funding line, I believe in this quarter.

Stuart: Okay. Well, Neil Sheather, it’s been an interesting journey from the humble beginnings of what has become Finexia. But it looks like it’s getting bigger and better. And the fact that you gained enough to talk about guidance tells me that there’s a few good years ahead, so keep up the good work.

Neil: Absolutely. Thanks.