Springleaf Holdings, a consumer finance firm based in Evansville, Indiana, plans to raise $320 million in its upcoming IPO on Thursday, October 17, 2013. The firm plans to offer 20 million shares, 42% which will be offered by insiders, at an expected price range of $15.00-17.00. At the midpoint of the expected range at $16.00 per share, LEAF would command a market value of $1.8 billion.
LEAF filed confidentially on August 16, 2013
Joint Bookrunners: BofA Merrill Lynch, Citi, Credit Suisse, Allen & Co, Barclays
Co-Managers: Keefe Bruyette Woods, Stephens Inc, JMP Securities, Sterne Agee
Springleaf, now nearly a century old, is a non-prime consumer finance firms that operates both a network of 834 physical branches and an online lender, along with a pair of captive insurance subsidiaries. The firm is primarily focused on offering various loan products to non-prime consumers, and offers services including origination, underwriting, and servicing of personal loans; its insurance subsidiaries offer its customers policies for themselves and for the property pledged as collateral for personal loans. Springleaf added its online iLoan division at the beginning of the year, allowing for the firm to reach customers located further from its branches and to provide increased convenience for all customers.
Springleaf also makes strategic acquisitions of loan portfolios to facilitate growth; as part of a recent joint venture, Springfield recently acquired a $3.9 billion consumer loan portfolio from HSBC Finance Corporation, in which it owns a 47% equity interest.
LEAF offers the following figures in its S-1 balance sheet for the six months ending June 30, 2013:
Net Income: $98,819,000
Total Assets: $16,042,293,000
Long-term Debt: $13,470,413,000
Total Equity: $1,723,726,000
LEAF has seen a recent spike in revenue, with a 63% increase in core consumer revenue for the first half of 2013 compared to the same period in 2012. However, the company did show substantial losses for 2011 and 2012 and expects to the upcoming quarter not to compare favorably with last year's third quarter.
We rate this IPO neutral to negative at the $15 to $17 price range.
We are not comfortable with the company's history of huge losses, upcoming guidance for the third quarter, better capitalized competition and excessive total compensation packages to executives described from pages 113 to page 122 in the S-1 filed 10/11/2013 (9 pages of compensation items) who have lost over $200 million in recent years.
If the IPO is priced below $13 or trades down below $13 during the first few weeks, we would consider the stock given the strong performance of most financial IPOs this year.
Springleaf has to potential to be a profitable company in a recovering economy, as more consumers begin to feel comfortable making large purchases. It should be noted that Springleaf's profitability has not been consistent, in large part due to the 2008 economic collapse; the firm had not posted a profitable year since the collapse, posting losses in excess of $200 million in 2011 and 2012. That said, Springleaf seems to have done well in pulling itself out of the recession hole, and its recent addition of an online presence and its large acquisition from HSBC both bode well for the firm's future health. LEAF's experienced senior management team is also encouraging.
LEAF must contend with significant and expanding competition in the consumer finance field, including some competitors with superior capitalization and resources. Major competitors include American Express (AXP), Dollar Financial Corp (DLLR), MoneyGram International (MGI), Visa (V), and Discover Financial Services (DFS). Springleaf may face additional competition as a result of the July expiration of the Dodd-Frank Act's three-year moratorium on banks affiliated with non-financial commercial enterprises.
LEAF's focus on non-prime consumers is a distinct advantage in the aftermath of the 2008 crisis, as the financial fallout from the collapse left significantly more non-prime consumers than had existed before the crisis. As of 2011, the FDIC estimated that some 51 million American households were under-banked, so significant organic growth opportunities should be available in coming years.
Springleaf features a highly experienced senior management staff that averages 25 years of experience in the financial services and consumer finance industries. CEO Jay Levine has over 29 years of experience in the industry, and has served as President, Chief Executive Officer, and Director of Springleaf since 2011. He previously served as President and CEO of Capmark Financial Group Inc. and as President and CEO of Royal Bank of Scotland Global Banking and Markets, North America.
Additional disclosure: This article is neither a recommendation to buy or sell shares, and investors should always do their own research including reading the S-1 and discussing any investment with your financial adviser.