Change Financial Limited

Leadership Vows Weigh on Stock: Down 6.5% on September 07, 2018, U.S. based Change Financial Ltd (ASX: CCA) has witnessed many management changes that have derailed the stock quite a bit. Triggered by a sudden exit of CEO Eric Bachman who was appointed just last month, the group saw a tremendous sell-off in the shares as the investors make efforts to understand the rationale behind the unexpected moves. However, the company did clarify that Bachman seemed to miss the true nature of business as he told the management. Another high-profile exit came just last month with Peter Clare resigning as a director of the company.

The latest blow now comes with the fintech group appointing Teresa Clarke as Executive Chair on a consultancy basis for an initial period of four months at a monthly fee of US$44,000 in addition to the usual Chair fees. This is being under the radar of investors in relation to burning out of cash which otherwise looked manageable earlier.

On the other hand, the company posted significant growth in terms of revenue, but so did the expenses that thereby impacted the bottom-line numbers. However, as the group is in an expansion phase, increased expenses are not unexpected. At the current juncture, the investors should be concerned with the management structuring and how efficiently the company can invest its funds to achieve higher revenue growth. Putting the funds to work, CCA earlier made a strategic investment for the commencement of exploration and integration of blockchain technologies. This can help in transferring the blockchain based digital asset to transact easily through existing infrastructure. ChimpChange results were also impressive exhibiting the potential in terms of customer base growth and transaction value.

 
FY18 Performance (Source: Company Report)

Leadership upheavals are being looked upon by the market and need to be contained to keep the company back on track of growth. Meanwhile, strategic utilization of the funds towards expansion and revenue growth target can support better results going ahead. The current ratio for the company came in at 2.67x, a drop from previous year’s 17.95X but above the Industry median of 2.37x.

Stock Performance: The stock has been in the downward spiral generating YTD return of -81.33%. However, the company still seems to have some potential while relative strength indicator has been in the oversold zone from quite some time now and a bounce back in the near term is required. We recommend a “Hold” on the stock at the current market price of $0.145 and have a wait and watch approach on further developments.

 
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