blue chip merger details blue chip history
since 2020 was anomalous year, looked at 2017-2019. interest margin earned has averaged about 11% and cost of funds (int expense) vary between 3.0-3.2%. pcl vary between 0.95% and 1.2%, so finance margin was 63-65% in 2017-2018 and 58.3% in 2019. operating margin was 38% in 2017-2018 before dropping to 23.4% in 2019. In abs dollars, operating income was $5.9 milllion in 2017, $6.8 million in 2018 and $4.2 million in 2019 (and was $1.4 million in 2020). so business had been not really growing and seemed in runoff in 2020 and early 2021. needed something. press release says with vault, net receivables will be $270 million (vault is more than $160 million of this). so new management for this newco could get cdn ops growing again.
In cdn ops in the future, If interest margin remains historical 11%, cost of fund 3%, pcl back to 2017-2018 levels of 1%, finance margin cud be $18.9 million. how much goes to operating income. If leverage of fixed costs allows op margin to get back to 2017-2018 level, then op margin could get back to 38% which would be $11.9 million.
chw shareholders own 51% of newco so entitled to $6.1 million of this. Aat current values, chw agreed to pay about $15 million (1.6 million shares) for that guesstimate $6.1 million in ongoing op income + assumption that this will grow under right management. chw must think they can start growing this cdn operation again to make this deal. dilution to shareholders is ~10%.
so it looks like chw growing not only in us but now in canada. In march, company said they want to fund more than $650 million in new loans/leases in 2021, so when this acquisition is added to this, ending receivables balance by year end looks like could be north of $1.2 billion. with avg yield of 13% in US and almost 11% in Canada, lowered cost of funds and better leverage of fixed costs, seems +++ for profits/dividends/etc…
so fact that Vault principals (already a 10% holder of CHW stock) wanted no cash up front, more CHW stock and signed up for 3 year vesting can only be a +++ factor too. chw insiders buying personally in big $$$, company buying back stock consistently, and vault principals want no cash, but more stock. staying long