Homechoice set to rein in granting of credit
CONCERNS about the formation of a credit bubble persist and direct marketing group HomeChoice Holdings will maintain a cautious approach to granting credit this year, chairman Rick Garratt said in the company’s annual report, released last week.
There has been recent tightening on the extension of loans and stricter credit-granting criteria by financial services companies and retailers following unease over the rapid increase in unsecured lending.
“The credit environment has deteriorated due to higher levels of consumer overindebtedness and strong growth in unsecured lending, although growth moderated slightly late in the year (2012),” he said.
The company, through its retailer HomeChoice, markets homeware to the urban mass market on cash or credit terms. It also provides personal loans to retail customers though FinChoice, and sells laptop computers and smartphones on credit through FoneChoice.
Unsecured lending is the granting of credit without assets being provided as security, at higher borrowing rates. Consumers — especially those in the lower living standards measures — have been using such short-term debt instruments to offset the loss of discretionary spending power.
In January, retailer Mr Price said the group’s intention was to remain a cash-based retailer and that the “downside risks currently associated with unsecured credit” had led the group to take a decision to slow credit sales growth.
Truworths CEO Michael Mark said in February that the credit environment was expected to deteriorate further owing to increasing levels of consumer indebtedness.
HomeChoice in its annual report said it grew headline earnings per share by 20% to 282c in the year to December. Group revenue increased by 28% to R1.43bn, while operating profit increased by 18% to R403m.
HomeChoice delisted from the JSE in 2003 as uncontrolled growth had left the company unable to fund its debtors’ book. This led to growing losses, which in turn sent its share price plummeting. A buyout offer well below the company’s net asset value was approved at the time.
In April last year it announced it would seek to list on the JSE again in fourth quarter of last year, but later shelved those plans, saying that market conditions were not “supportive for a listing”.