While FSA provides multiple insolvency services to assist those...

While FSA provides multiple insolvency services to assist those suffering financial stress, the real money earner for the company is in administering debt agreements.
FSA records show that on average, a debt agreement lasts four years and five months and earns fees of approximately $100 per month. An average client would therefore be worth approximately $5,300 in fees to the company over the life of an average debt agreement.

In the last three years, FSA’s overall market share with debt agreements have been 54%, 51% & 53% respectively. Based on this history, I am working on FSA having a 52% share of the market for the current financial year.
There has been steady growth in the number of active debt agreements the company administers. Client numbers extracted from recent reports are as follows:
30 June 2010 = 11,050
31 December 2010 = 12,800
30 June 2011 = 14,394

In Australia last financial year according to the ITSA, 8,052 debt agreements were entered into in the market as a whole. With FSA claiming to have 53% of this market, approximately 4,267 would have therefore used FSA, which resulted in a net increase of 3,344 debt agreements for the company. Based on last year’s result, for approximately every four new debt agreements written, one is finalised, lost or cancelled.

ITSA records show that the first quarter of the 2012 financial year has seen a total of 2,224 debt agreements entered into in the Australian market. This is an increase of 10% from the previous quarter. FSA is therefore likely to have picked up 1,156 new debt agreement customers for the first quarter and lost 289 resulting in an overall net gain of 867.

The number of people entering debt agreement in recent months has increased. With the economy tipped to worsen, one expects that this unfortunate trend upwards may continue.

The company forecasted last year that it expects to have 17,500 active debt agreement customers by 30 June 2012. To meet this target, FSA needs a net gain of 3,106 debt agreements for the current year. Whether the company reaches the 17,500 milestone by 30 June 2012 will ultimately be dependent on market conditions and the aging of the agreements already in place. It would however appear that they are well on their way to achieving the goal.

To put in perspective, 1156 new debt agreement customers in the quarter equates to an estimated $6,129,000 in fee income over the next four plus years if previous trends are any guide. The company has been pushing the line that any expenses occurred to administer new debt agreements are negligible in the scheme of things. Let’s hope they are right.

The payment of a dividend was a somewhat unexpected bonus. Let’s also hope that they can repeat that surprise at the end of the half year. The extra cash flow from the additional debt agreements should increase the chances.