COG’s Equity Raise and Fleet Network Buy Heighten Execution and Regulatory Risks

COG’s Strategic Capital Raise

COG Financial Services Limited (ASX, COG) has announced a A$20 million institutional placement priced at A$2.00 per new share, representing a modest discount to recent trading prices. The capital raise is designed to fund the acquisition of an additional 14.08% stake in Fleet Network, a key player in novated leasing and salary packaging services. This acquisition will increase COG’s ownership in Fleet Network from 78.3% to 92.4%, further consolidating its position in this growing segment.

The placement will issue 10 million new shares, approximately 4.7% of COG’s current issued capital, and is managed exclusively by Morgans Corporate Limited. Proceeds will cover the purchase price of A$23.9 million for the minority stake and associated transaction costs, leaving COG with a pro forma liquidity buffer of around A$5 million post-transaction.

Fleet Network Acquisition, A Growth Catalyst

Fleet Network, founded in 1997 and with a strong presence in Western Australia and expanding nationally, specializes in novated leasing and salary packaging. The acquisition aligns closely with COG’s inorganic growth strategy and enhances its salary packaging capabilities. Management retains a 7.6% stake, ensuring continued alignment with COG’s strategic objectives.

The deal is expected to be immediately accretive to earnings per share on an FY25 pro forma basis by approximately 5.1%, contributing an additional A$3.9 million in EBITDA. Combined with the recent acquisition of EasiFleet, which adds A$5.7 million EBITDA, COG’s pro forma FY25 EBITDA rises by 25%, signaling robust growth momentum.

Strong FY25 Performance and Outlook

COG reported solid FY25 results with revenue of A$363.5 million and NPATA of A$24 million. The novated leasing segment, in particular, delivered strong growth, supported by government incentives for electric vehicles and ongoing uptake from existing partners. COG plans to maintain its acquisitive approach while investing in operational improvements, including cyber security and broker aggregation functionality.

Looking ahead, COG intends to shift its performance focus from NPATA to EBITDA, reflecting a strategic emphasis on cash flow and operational efficiency. The company also signals a continued commitment to paying fully franked dividends at similar payout ratios, reinforcing shareholder returns.

Balance Sheet and Risk Considerations

Post-acquisition and capital raise, COG maintains a strong balance sheet with a pro forma net debt to FY25 EBITDA ratio below 1.0x, providing financial flexibility for future growth opportunities. However, investors should remain mindful of risks including market volatility, regulatory changes, and contingent liabilities linked to deferred payments dependent on the extension of fringe benefits tax exemptions for electric vehicles.

COG’s ongoing investments in cyber security and operational resilience are prudent given the increasing risks in financial services technology platforms. The company’s proactive approach to acquisitions and organic growth positions it well to navigate the evolving asset finance broking and leasing landscape.