ALLIANCE Finance Corporation is capitalising – literally – on the rise of insurance premiums to hit the country this year.
ALLIANCE Finance Corporation is capitalising – literally – on the rise of insurance premiums to hit the country this year.
The funding company last week lodged a prospectus to offer the public a 42.67 per cent stake in the company by issuing 16 million 50-cent shares.
The $8 million to be raised will capitalise Alliance at $18.75 million and will fund expansion plans and reduce debt. Applications under the prospectus open this week.
Alliance managing director Martin Kane said the company’s existing multi-option overdraft facility was no longer sufficient to service its predicted jump in revenues in the next year.
The company’s main source of revenue – insurance premium funding – involves the short-term (less than one year) lending of money to businesses so they can pay their annual commercial insurance premiums. Alliance is moving into a market that banks and other financial institutions have exited in recent years, and predicts it will improve its market share by offering its customers the local knowledge, service and flexibility larger companies cannot offer.
Based on increases in both public awareness of the product and insurance premiums, Alliance is predicting its June 2001 loan book value will double by June 2003, from $64.7 million to $130 million. Between July 2000 and January 2002 the company’s customer base doubled from less than 1,500 to 3,000 accounts.
Alliance’s prospectus predicts a net profit for fiscal year 2002 to be just over $1 million from operating revenues of $5.4 million, but the 2002-03 financial year is expected to deliver an after-tax profit of $2.5 million on revenues of nearly $8.4 million.
Mr Kane said Alliance’s capital raising would allow the company to diversify in both the type of funding options it offered and the prices of its funds.
“Because of the constraints on capital we’ve had over the past 10 years, we’ve never really been able to strategically think about the direction of the company. It has always been how are we going to fund all this business that’s coming in – that’s been the problem,” he said.
“Now we can actually go after business, we can do all sorts of things with a bit of flexibility in the balance sheet.
“The September 11 (events) and collapse of HIH have had a huge negative impact on insurance premiums and a lot of our growth is going to come out of those increases.
“Without doing anything, our existing book is going to increase by 20 per cent we believe, and then on top of that we’ve got new business to attract too.”
Mr Kane said Alliance’s current gearing was at the lowest point in the company’s 10-year history at 1:1, down from 9:1 last year. The decision to raise $8 million in capital was to ensure the company could keep its debt-to-equity ratio comfortable in the medium to long term.
“We could have raised $50 million, but there’s no point,” he said.
“We only needed to raise $8 million, and that adjusts all the balance sheet stuff and means we can go back to the bank with a degree of confidence.”
Mr Kane will hold a post-listing 45 per cent stake in Alliance, while existing shareholders will control another 12.33 per cent.
Alliance intends to distribute 60 per cent of after-tax profits for 2002-03 as dividends. This will equate to a fully franked dividend of four cents, payable in two instalments – 1.5 cents in March 2003 and 2.5 cents in November 2003.
