An opportunity exists for Wholesale Investors to invest in 2CC Holdings Limited (“2CC” or the “Company”), one of New Zealand’s largest used car dealerships by volume of sales, providing the potential for both capital growth and cash returns.
The Board of 2CC is considering Listing on the New Zealand Stock Exchange in Q1 2021. As a precursor to the Listing and to assist in meeting investor spread requirements, the Board has also determined to raise up to $5.0m of new equity in a private share placement (“Offer”) and will result in the issue of up to 5,000,000 new ordinary shares, representing 10.6% of 2CC’s existing ordinary shares on issue.
Founded in 2011, the Company has grown to be a nationwide dealership, with 12 dealerships throughout the country, selling 11,000+ cars and generating annual turnover of $75m+. With two operating divisions - Automotive Retail and Finance, operations in New Zealand and Japan, 2CC is a significant player in the New Zealand Automotive industry with an estimated market share of 10% of the used car import market.
2CC’s high volume, low cost business model has proven to be highly disruptive to the New Zealand used car import market. In the last five years the Company has sold 53,800 cars, with an average of 11,092 cars sold per annum in the last three years.
2CC’s integrated supply chain via their Japanese based procurement team allows staff to visually inspect cars before purchase improving the overall quality of stock, and providing more control over the price ultimately paid for the vehicle as opposed to relying on third party agents.
In February 2019, 2CC launched NZ Motor Finance (“NZMF”), offering vehicle finance to its automotive retail customers. Vertical integration between automotive retail and finance is a key growth area for the Company.
Favourable Industry Outlook
The used car market is resilient and robust. New Zealand has an aging fleet with 22% of cars are over 20 years old, meaning approx. 890,000 cars will need to be replaced over the near term. Imported passenger vehicle sales have grown at an annual growth rate of 8.5% in the last seven years.
Click to understand the New Zealand importation and compliance process for used Japanese vehicles.
2CC’s strategy focuses on leveraging its retail channel to cross sell finance to a captive customer base, creating a more diversified business that supports stronger margins, greater return of capital and an broader range of growth opportunities.
- Leverage the Company’s vertically integrated supply chain to source higher quality cars at lower prices
- Significantly grow NZMF’s loan book by offering automotive retail customers finance from NZMF. Approximately 32% of vehicles sold each year are sold with finance (equivalent to $30m of loans) which has historically been provided through a range of third-party providers.
- Improve the Company’s digital offering by upgrading the Company’s digital platform.
2CC has a strong balance sheet with high free cash flows and a history of paying dividends to shareholders. The Company is targeting a dividend pay-out ratio of 50-60% of net profit after tax (subject to Board approval). The Company has performed well since the move to Level 1 with sale volumes remaining high and has demonstrated it can generate positive earnings under both level 1 and 2 restrictions.
2CC was fined by the Commerce Commission and by the MBIE for breaches of the Fair-Trading Act and the Consumer Guarantees Act between 2014 and 2017. The Company has since invested significantly in systems, procedures, people, and governance to ensure compliance with consumer law obligations and that past indiscretions do not occur again.
The funds raised from the Offer will be used to assist in the growth of NZMF’s vehicle finance book. The Board has engaged Northington Partners Limited to manage the Offer.
Investors should be aware that while the 2CC Board has committed to pursuing a Listing, there is no guarantee that a Listing will take place. The final decision to proceed will be based on the 2CC Board being comfortable at the time of the Listing with prevailing market conditions and the Company’s progress toward key business milestones.
If you are wholesale investor seeking regular cash returns and potential capital growth, then register you interest below to be put in contact with the adviser managing the Offer.