Analysis: Firstmac, Finsure and the penny stock from Kalgoorlie

Goldfields Money, the penny stock at the centre of a bidding war between Kim Cannon’s Firstmac and John Kolenda’s Finsure, is sitting pretty. The little-known lender from Kalgoorlie has seen its share price surge by 42 per cent since early September. Most of the inflation occurred this month. On 6 November, Goldfields shares were trading at $1.18; by lunchtime on 26 November, they had hit $1.45.

In early November, Firstmac lobbed a cash bid to acquire the ADI at $1.12 a share, valuing the company at approximately $25 million.

The board rejected the offer. Firstmac upped the bid to $1.27 a share, which was also rejected. The ADI was waiting for a better deal.

Firstmac’s offer received considerable media attention. It’s not often that you find a mortgage lender with a $9 billion book that is wholly owned by one man. Kim Cannon, the Pink Floyd fanatic and Firstmac founder and owner of Loans.com.au, has been hunting for a banking licence for years. Having a personality behind the brand gives more currency to the story, and the press loves a tycoon, particularly in the mortgage world, where names like Kinghorn, Bouris and Symond sell papers.

Based on its current share price, Goldfields has a market cap of around $32 million, far more than Firstmac’s increased bid.

In a strange turn, the ADI announced late last Thursday (23 November) that it was working on a merger deal with Finsure, one that would more than triple its capitalisation to around $100 million.

The marriage makes sense: Goldfields will have a network of more than 1,000 mortgage brokers and Finsure will have a funding partner.

White label lending has become a top priority for aggregators, but Finsure is a little different. In addition to taking a clip of every loan its brokers write, the group owns Better Choice Home Loans, a new brand borne out of the consolidation of old mortgage managers Iden Loan Services, Future Financial and Pioneer Mortgage Services.

Better Choice is banking on innovative products that fill gaps in a home loan market that has been squeezed by regulators. This week the group is launching a mortgage for non-residents.

Aligning distribution and product manufacturing is part of the rationale behind the proposed Goldfields-Finsure deal. An overview of the proposed transaction tells shareholders that the coupling will create a “distinct funding advantage” with increased scale and profitability for all involved.

“Finsure has in-depth mortgage market knowledge and a significant distribution arm of 1,200-plus accredited loan writers, plus access to a further 5,500 loan writers through its Better Choice wholesale mortgage management products,” the prospectus said.

The clincher is the Goldfields banking license, which Firstmac looks to have missed out on. Having an ADI license will give Finsure access to cheaper funding, widening the margin for Better Choice’s wholesale products. 

If it goes ahead, the merger will become an important event in the history of Australian mortgages. A decade after the funding markets dried up and mortgage managers closed shop, it looks as if a gap is opening for their return — provided the funding is reasonably priced and groups producing the home loans can provide offerings that the mainstream banks can’t, like non-resident mortgages.