Transcription of The Stock Network Interview with Solvar (ASX:SVR), CEO and Managing Director Scott Baldwin
Lel Smits: Solvar, the specialist lender behind Money3, Automotive Financial Services, and Benji has entered the FY27 financial year with an Australian loan book above $1 billion for the first time. The group has more than $400 million of funding headroom to support growth across consumer and commercial lending. Ahead of presenting at TIPS Conference, I’m joined by Solvar CEO and Managing Director Scott Baldwin to discuss loan book momentum, credit quality, and Benji’s commercial lending opportunity.
Scott, welcome back to the Stock Network.
Scott Baldwin: Thanks. Good to be here, Lel. I appreciate the opportunity.
Lel Smits: Great to have you on. Keen to learn how you are building on your loan book growth in the year ahead.
Solvar’s Australian loan book grew 6.4% in the first quarter with growth across all operating segments. Scott, what is deriving this momentum? And also, why does reaching a $1 billion loan book create an important earnings opportunity for FY27 and beyond?
Scott Baldwin: Now, it’s been great through the first quarter to pass through a billion dollars of loan book, and it has been all of our business units that have grown, particularly the commercial and Money3. Why it’s so important is that the loan book is the leading indicator of future revenue growth.
So, we have a loan book and we charge an interest rate against that outstanding receivable. So, investors can look at our loan book growing and know that our revenue will continue to grow as a result of that loan book growth. So, in terms of profitability, investors should be able to draw that line that revenue will lift in FY27, but our bottom line will improve significantly in FY28.
And the reason for that delay in terms of earnings bottom line is just that there are, you know, there are costs that we pay to the broker network. We take a lot of that expense upfront in the year that we write the loan, which has an impact on FY27. And the other part is we also take element of upfront provision.
So, while we settle a loan on day one, on day one there’s costs, but no revenue, and then the revenue comes over time. We take that provision based on our past performance and our outlook, or we actually subscribe to a lot of data from Westpac and their economists to help us build our forecast for future impairment or bad debts.
Lel Smits: Excellent. And when it comes to managing that credit quality across Selva’s loan book, bad debts for Selva finished last financial year at 4.4% of gross receivables. That was at the upper end of the target range. Scott, what are you seeing in customer behaviour amid all of these cost of living pressures? Also, how are you managing credit quality and that impairment provisioning?
Scott Baldwin: Well, if investors look at the FY26 results, they will see that, yes, we were at the upper end of our forecast bad debts, and I believe we’ll continue to be there in FY27, just as a result of the outlook of particularly fuel prices and other cost of living.
How we manage that or what we see in terms of the customer behaviour is, firstly, we do see a lot of customers paying out earlier than we’d otherwise like them to. They’re managing their personal balance sheet by selling the asset that they have. And I’ve said this many times because our customers are quite reactionary that when there are forecast, stronger or challenging economic times, we do see cash flow lift.
And it has again, and you can see that in our accounts, that receding cash flows have been up. How we will manage it, we think it is going to be a very slow-moving train in that we can see deteriorating economic conditions, customers finding it a bit of a challenge, but that’s why we forecast at the upper end of our write-off range. And we’re expecting at the end of this year, I mean, we’re past the first quarter, that we will come in with slightly better overall credit quality as a result of maintaining that higher level of provisioning and write-off.
So it will, you know, there’s a cost to that, but that way we keep our loan book as a whole, you know, in a good credit quality shape. And we have to do that because it links directly to the funding opportunity that’s presented to the group.
Lel Smits: Yes. And in terms of Benji really becoming a second growth engine, commercial lending has continued to build momentum with the loan book, reaching about $150 million at the end of the first quarter. Scott, how are you leveraging Money3’s existing broker and customer channels to grow Benji? And also, when do you think it could become a meaningful contributor?
Scott Baldwin: Yeah, commercial lending is a new opportunity that we’ve focused on building out with new products in the group. But the distribution has, you know, it’s over 20 years it’s been established through the Money3 network.
So this is a new product we’ve taken to existing relationships and many of those brokers have been asking us to build that product portfolio for years, frankly. So that momentum I expect to continue, you know, to continue to grow. Last month was around $17 million of commercial lending, one of the strongest months we’ve ever had.
And a lot of that is not actually going to people we haven’t worked with before, but leveraging those existing relationships that the group has had for many years. In terms of the contribution, commercial lending as a whole, so that’s Benji and AFS, commercial products have exceeded $150 million, we expect that to continue to grow. I think commercial as a whole, particularly in Benji, will break even this year is where we’d like to see that land.
And the reason for that is we have invested in some new staff, particularly software and product development, we want to wash all of that expense through our business as quickly as possible, so that we start to see a positive bottom line contribution coming through in FY28 from our growing commercial division. Consumer is still a very big contributor and I’m pleased to say the growth of Money3 will drive our bottom line in FY28. But 28, 29, 30 is where we start to see a bottom line contribution coming from commercial in 28 and meaningful contribution coming in those future years as we put in place our 2030 strategy of doubling our business.
Lel Smits: Scott, I appreciate the update from Solvar, look forward to hearing more when you’re on stage at TIPS conference very soon.
Scott Baldwin: Looking forward to it.
Ends