This may have been posted previously, although I have not seen it. I was a BIG holder until 3 days ago. I am also a GSW holder and i must admit i got a bit skittish after GSW and i sold BIG. I got a bit lucky.
This article by MF I think is spot on
https://www.********.au/2018/02/09/why-the-big-un-ltd-share-price-is-getting-smashed/
I also run a business where we regularly have customers obtain finance from non bank providers. In fact we use two well known ASX listed companies. One of them pays commissions which are very generous by introducing a customer and a completed finance deal. This is the first thing a read with interest re BIG's announcement. No commissions? Why Not? They even make a specific point of it as a badge of honour. Why would a company like BIG funnel all this business to one relatively unknown finance company. There only 2 reasons you would do this.
1. because they approve more deals than other finance companies. ie they approve very marginal / risky customers for BIG to complete a sale
2. they pay commissions
well we know (2) isn't the reason, assuming the announcement is true. In my opinion and that of the MF article is that the finance company is doing it because they are being compensated with discount shares, and a lot of them, for the finance risk they are taking. So this means BIG shareholders are effectively bank rolling the risk of providing finance and hence sales revenue growth. Dramatic Sales revenue growth it could be said is being "artificially inflated" because of this "share holder guarantee" to the finance company.
Now all this is still my opinion and of others like MF but with my experience of running a fairly reasonable business ,,,, it is a fairly well founded one.
I am not saying this "share holder guarantee" structure is illegal, although the finance company may have an issue when it appears they are knowingly providing finance to customers that really do not qualify or have limited ability to repay. And remember where is the security for the finance company to reposes. Can't repo a video!!
The other issue goes to the sustainability for ongoing sales revenue growth with this structure. It has been great for the share price, all this revenue growth but are share holders aware they are possible guarantors?
Before i get attacked for down ramping, which it is not. Ask yourself the question. For what reason would a company like BIG need to issue discounted stock to a finance company for?
If my private business could get a finance company to provide fiance to any un-credit worthy "tom, dick and harry" (is that being sexist in 2018 - who knows) my sales revenue would sky rocket. If i ran a public company, it would see the share price sky rocket as well. If that happened I could even get share holders to guarantee even more customers to the finance company. But is it sustainable????
Watch out for more AFR articles on this. If they do, the share price will be closer to $0.50
