ThinkSmart upbeat on ongoing performance after ClearPay sale

Retail finance and digital payments provider ThinkSmart reported a 121% improvement in profit after tax for the six months ended 31 December on Wednesday, reporting that its holding in ClearPay was driving ongoing value accretion and capital returns.

The AIM-traded firm said the boost in profit was driven by a £16.4m non-cash fair value gain on the independent valuation of its retained shareholding in ClearPay Finance.

Net assets stood at £29.1m at period end, equivalent to 27.32p per share.

A special dividend and capital return of AUD 5.96m, or 5.6 Australian cents per share, equivalent to £3.2m, was paid in December, which the board said reflected the sale of its remaining holding of 125,000 shares in Afterpay Touch Group, which was received as part the consideration in the ClearPay sale.

Cash and cash equivalents stood at £8.5m as at 31 December, with the board reporting that its 10% holding in ClearPay Finance was revalued to £16.5m as at 31 December, from £0.1m in the first half of the 2019 financial year.

ThinkSmart said the sale of the ClearPay subsidiary had now generated cumulative profit of £26.1m, including the £16.4m non-cash fair value gain, and £7.6m of capital returns and special dividends, with the 10% stake offering further upside potential according to the board.

Looking at its operating business, ThinkSmart said it was built on its investment in a proprietary digital payments platform and credit decision-making engine, SmartCheck.

It reported “optimised” cash management in the period, with £0.99m net cash generated from operating activities, down from £1.49m a year earlier, while the continuation of managed volume reduction yielded revenue of £3.3m, which was down 28% compared to the same period a year earlier.

Operating costs were further reduced to £2.2m from a restated £2.3m year-on-year, and remained “controlled”, and aligned to the company’s current volume performance.

ThinkSmart said its legal proceedings against the Dixons Carphone division Carphone Warehouse, for damages for losses estimated at £20m for its breaches under the Flexible Leasing contract, and its predecessor the Upgrade Everytime contract, as announced on 29 November, remained ongoing.

“ThinkSmart's successful sale of 90% of its ClearPay subsidiary to Afterpay in 2018 continues to generate considerable value for shareholders as evidenced by the £3.2m December special dividend/capital return and £16.4 million revaluation gain in the value of its retained shareholding in ClearPay,” said executive chairman Ned Montarello.

“The operating performance of the ClearPay business since its launch in the UK in May 2019 on the Afterpay platform has been highly impressive.

“This momentum has a direct read through to the value of our ClearPay holding and we see significant future valuation upside potential.”

Montarello said that, within the company’s wider core leasing business, it continued to review its diversification strategy and worked to maximise its relationship with Dixons Carphone, as it looked to improve volume performance.

“The business continues to generate positive cashflow while rightsizing its operations to current volumes.

“ThinkSmart's legal claim against Carphone Warehouse for breaches of contract with regard to the Upgrade Everytime and Flexible Leasing products is ongoing.”

At 0940 GMT, shares in ThinkSmart were up 4.9% at 18.36p.