IEGH is continuing to attract market attention, recently grabbing the focus of ACF Equity Research, which has provided a value upgrade and share price target of $8.58 per share.
The value increase projected by ACF is based on the organic growth that IEGH is delivering in regard to booked loans, free cash flow models, and its aggressive and successful expansion into additional markets throughout the United States. The increased price target excludes the potential value from a completed acquisition of OneMain Holdings, which IEGH announced its intent on January 6, 2017.
Basis For Value Upgrade
The ACF upgrade was considered on several fronts. First, IEGH has confirmed its guidance to become free cash flow positive in Q1 of 2017E, benefiting from aggressive cost cutting and an efficient business model. Next, IEGH has announced its intention to commence paying a regular cash dividend beginning in 2017. And, finally, IEGH will be initiating a stock repurchase program that has been authorized by the board of directors. The stock repurchase program will purchase shares on the open market, utilizing an allocation of $2 million dollars for the program.
IEGH has been steadfast in delivering shareholder value, reaching its FCF positive position well ahead of forecast. The company has delivered record growth for the year ending December 31, 2016 and is on a path to expand its service base into 25 states by the middle of 2017.
Additional Value From OneMain Acquisition
Absent from the upgrade is the value that may be gained from its unsolicited all-stock acquisition offer for OneMain Holdings.
IEGH is working to educate OneMain investors as to the synergistic and long-term benefit of accepting the IEGH offer. IEGH believes that they can immediately cut over $1 billion dollars in unnecessary costs from a combined overhead, eliminate brick and mortar locations, and resize the combined company to efficiently take advantage of growing consumer demand for online loans. IEGH offers a simple and expedited lending experience, with a clear application process designed to provide complete lender transparency.
The terms of the offer call for two IEGH shares to be given for each single share of OneMain Holdings common stock. IEGH management believes that the offer can be immediately accretive and lead to a paramount shift for a combined IEGH/OneMain, delivering a combined profitable entity that will not be burdened with excessive executive and real property overhead.
If IEGH shares continue to gain traction, the terms of the deal are not necessarily out of proportion. While on paper the two companies appear to be miles apart on valuation, it must be said that, while IEGH is delivering on its ability to deliver positive FCF, the same cannot be said of OneMain. Additionally, OneMain does not offer a dividend to shareholders at this time.
It may be worth the while of both companies to sit and discuss the streamlined benefits of a combined entity.
With brick and mortar clearly being phased out in a broad spectrum of commerce, OneMain should, perhaps, pay closer attention to what IEGH has to offer – as should their shareholders, who have the most to gain or lose.
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