24 May 2021

ASX Ticker: MYS

MyState announces capital raising of up to approximately $80m1 to rapidly accelerate growth

(blah blah blah)

The 2021 - 2025 strategy has the following objectives:

• Accelerated home loan and retail deposit growth over the medium term, while maintaining asset quality.

• Improved operating leverage (cost to income ratio) in line with business growth.

• ROE accretion as capital is deployed.

• Sustainable growth in EPS over the medium term. In FY22 ROE and EPS expected to be diluted as capital is deployed and increased opex continues to deliver balance sheet growth.

(blah blah blah)

Financial highlights for the 10-month period ended 30 April 20212 include:

• Net profit after tax increase of 17.1%.

• Earnings per share up 16.2%.

• Net interest margin of 1.96%, up 10bps.

• Cost to income ratio down 360bps.

• Return on average equity up 101bps to 10.47%

FY21 guidance MyState is on track to deliver growth in pre-provision operating profit of +11% to +14% over the prior year, and positive JAWS, notwithstanding an uplift in cost growth to support accelerated growth in FY22.

***

I may just be bitter because I largely sold out of this one recently and so won't get to participate in the discounted CR but this leaves me a bit confused.  They had $114m cash as at December and yet they feel they need to raise another $80m to fund their next leg.  I don't think they've made their case as to what that spend will be on either.  There is no mention of acquisitions so presumably it's organic investment in people, products and systems but all their presentations speak to how they have delivered on their digital transformation in recent years.  Of course that job is never done but if it's funded by diluting shareholders you're only ever robbing Peter to pay Paul.  Their 2021-25 Strategy specifically states "ROE accretion as capital is deployed" and yet in the very next bullet  they state "In FY22 ROE and EPS [is] expected to be diluted as capital is deployed".  I'm also confused by their financial highlights and FY21 guidance.  NPAT growth of 17.1% vs pcp for the first 10 months and guidance of pre-provision operating profit growth of 11-14% for FY21 - why the difference?  We're left to make our own conclusions and mine would be that they're two different measures rather than some sharp downside change expected in May/June but surely you would explain that OR provide a waterfall or reconciliation between the two OR just use the same measure - which one do management focus on internally??  

[Not held]