KeyInvest is a member owned mutual Friendly Society regulated by the Australian Prudential Regulation Authority (APRA) under the Life Act. Established in 1878, originally as the Independent Order of Odd Fellows (IOOFSA), KeyInvest has a proud history and track record in financial services.
In December 2022 KeyInvest executed a Heads of Agreement to acquire 50% of the shares and business of Keystone Capital Ltd (Keystone Capital). The acquisition was subsequently completed on 9 June 2023.
Following the release of their first annual report as a merged entity, last week the desk caught up KeyInvest CEO, Craig Brooke.
As expected, the newly merged entity is performing as forecast at the time of the $11m note issue in June.
Financials and Performance
Highlights include:
• Common Equity Tier 1 and Additional Tier 1 Capital = $45.1m @ 30 June 2023
• 1st technical NPAT declared in 7 years FY23 of $686k
• KeyInvestFY24 forecast NPAT $1.99m on track, with July and August 2023 tracking $66k ahead of plan.
• Keystone FY24 forecast NPAT$5.81m on track. Note this excludes the activation of a$215m initial funding Warehouse from February 2024. A plan exists with the new team and Chief Credit Officer (Steve Lawrence) to fully deploy, adding $8m revenue p.a. This initiative would provide material upside to the business.
• Total Funds Under Management $415m.
• No Debt (ex corporate credit cards cleared monthly)
Launch notes from June initial offering: KeyInvest Capital Notes
Transaction summary:
- KeyInvest is acquiring a 50% stake in Keystone Capital. (The similarity in name is a coincidence)
- KeyInvest is an APRA regulated life company, friendly, mutual. KeyInvest acquired Australian Friendly Society (AFS) in Oct ’22. The merged entity is now 50,000 members, $408mm in FUM (Funeral Bonds and Investment Bonds).
- Post acquisition of AFS, KeyInvest now holds a substantial amount of regulatory capital on balance sheet (see graphic below).
- Keystone is an already profitable private lending business.
- The acquisition will enable KeyInvest to move from a subscale to profitable business.
- The combined entity will scale rapidly – the combined strengths on each side of the balance sheet solves each counterparty’s constraints.
KeyInvest Mutual Capital Notes:
- Additional Tier 1 Capital Notes (similar structure to MyState, Police and Nurses, Aus Unity notes).
- Coupon 90d BBSW+9-10% guidance (fully franked).
- $11mm issue size.
- First call 06/2028.
- Per the attached KeyInvest Capital report, the base scenario projection shows that very strong growth in the Regulatory Capital Surplus and Free Capital position is expected, adding over $20 million over the 5 year projection period.
KeyInvest Recent History and Near Term Outlook:
- FY20 – Decision made to completely divest capital intensive retirement village assets and refocus on core financial services offering. Five retirement villages divested. Bank debt fully repaid. Mortgage Fund strategy developed.
- FY21 – KeyInvest Select Mortgage Fund launched. Loans funded via KeyInvest Balance Sheet.
- FY22 – Remaining 2 retirement developments sold, admin services commence for AFS.
- FY23 – AFS merger in Oct 22 added $10m to KeyInvest Balance Sheet and $160m in Funeral Bond FUM at no cost. Acquire 50% Keystone Capital prior to 30/6/23.
- FY24 – A return to sustained profitability. Increased revenue from life policy FUM and larger Balance Sheet, plus growing annual dividends from Keystone. KeyInvest is strongly capitalised with no existing debt, capable of servicing Capital Note distributions
