The lender once known as Money3 is throwing off a fully franked trailing yield above 12 per cent, padded by special dividends and a share price trading below book value. But behind the headline sits a sub-prime loan book exposed to the credit cycle.

The income question at the heart of a former Money3

Solvar Limited (ASX: SVR) is not a household name, yet the Melbourne-based lender — known until 2023 as Money3 Corporation — has quietly become one of the more generous dividend payers at the small-cap end of the Australian market. The central question for income-focused investors is straightforward: is a fully franked trailing yield above 12 per cent a genuine, repeatable income stream, or a headline flattered by one-off special dividends and a share price the market has marked down for a reason?

What Solvar actually does

Solvar is a consumer and commercial lender. Its core business, still branded Money3, provides secured automotive loans to Australian borrowers — typically used-car finance for customers who fall outside the major banks' lending criteria. The group also owns Automotive Financial Services (AFS) and is building a commercial equipment-finance arm under the Bennji brand. In plain terms, Solvar borrows wholesale money through "warehouse" facilities, lends it to individuals and small businesses at higher rates, and earns the margin — less the cost of loans that go bad. After several difficult years in New Zealand, management has been steadily retreating from that market to concentrate on higher-returning Australian lending.

The latest catalyst: a cleaner balance sheet

Strategic outlook and growth drivers

Management has reaffirmed FY26 normalised NPAT guidance of approximately $36.0 million — a figure that, on its own account, includes one-off gains from the New Zealand book sale. The growth story from here rests on three planks: writing more Australian auto loans (AFS delivered record originations in the half); scaling the Bennji commercial book, which management expects to roughly double through FY26 off a small base; and the funding-cost relief flagged for FY27. Solvar has also returned capital directly, buying back 5.3 million shares for $8.3 million in the half and 29.7 million shares for $45.7 million since FY23.

The bull case

For the optimist, Solvar offers a rare combination: a double-digit franked yield, a company trading below book value, falling bad debts, a de-risked New Zealand exit and cheaper funding on the horizon. The buyback and special dividends suggest a board confident it holds surplus capital. If Australian arrears stay contained and the FY27 funding benefit lands, the earnings base could support the ordinary dividend comfortably.

The risks to monitor

The bear case is equally clear. Solvar lends to non-prime borrowers, so a weaker economy, rising unemployment or higher arrears could lift bad debts quickly and pressure both profit and the payout. As management itself notes, the $6.2 million bad-debt improvement was partly a one-off, flattering the profit comparison. Special dividends may not recur, meaning today's headline yield overstates the repeatable income. And the thinly traded small-cap has been volatile, ranging between $1.39 and $1.98 over the past year.

The balanced verdict

Solvar's numbers make the "income machine" tag defensible on a trailing basis — but the label deserves an asterisk. Strip out the specials and the one-off bad-debt swing, and this is a sub-prime lender yielding around 9 per cent fully franked, cheap on book value but exposed to the credit cycle. Whether that is a bargain or a value trap depends largely on where Australian consumer credit heads next. This article is general information only and not financial advice; past performance and past dividends are not reliable indicators of future results.