Why Cuscal float is not altogether mutual

Cuscal is today mainly a provider of payment and card services to credit unions.

It’s a financial services sharemarket float and it does business with one in five Australians.

But the looming $550m IPO of Cuscal is not for everyone – not even, as it turns out, everyone inside Cuscal.

The Credit Union Services Corporation, has come a long way from its roots as a services group formed among smaller banks, mutuals and credit unions to gain some market power in the face of rapid banking industry consolidation.

A plan to float 50 per cent of the group – which is now chiefly a provider of payment and card services to credit unions – is well under way.

A pre-Christmas IPO is pencilled for late November in what would be the second biggest float of the year.

But Transport Mutual Credit Union, a member of the network, broke the news to the Banking Day newsletter this week that it won’t be coming to the party and is opting to not volunteer 50 per cent of its shares into the float.

What’s more, serving as a stone in the shoe for the IPO’s promoters, Transport Mutual chief executive John Kavalieros let it be known his credit union did not like the plan to take Cuscal public one little bit.

Cuscal chief executive Craig Kennedy.

“An IPO could potentially challenge Cuscal’s longstanding dedication to mutual values,” Mr Kavalieros said.

It’s not what you want to see when you are gearing up for a float in a very fickle market where IPOs at home and aboard are flopping regularly. The biggest float on the ASX so far this year was the $1.3bn listing of chemicals company Redox at an offer price of $2.55. Today the its share price is $2.38.

Cuscal chief executive Craig Kennedy is on an extended roadshow this month courting both institutional and retail investors. He’s been pointing out the recalcitrant Transport Mutual Credit Union is both a very small shareholder and has been substantially outvoted by its peers across the Cuscal network.

It is understood that 29 out of 30 stakeholders in Cuscal signed up to sell 50 per cent of their stake into the float. All shareholders have also agreed to a 12-month escrow – an agreement to not sell shares during the forecast period.

Essentially, Cuscal is putting itself out in the market as a financial services infrastructure play with a defensive “moat” of recurring revenue and the ability to pay a fully franked dividend.

Kennedy has also outlined that Cuscal is showing “above system” growth compared with the wider banking system and in fact mortgage growth inside the group is running at up to twice the pace of the major banks.

If Cuscal is floated successfully it will break the mould; there is little to inspire faith in newly listed financial services stocks just now. Judo Bank listed at $2.10 less than two years ago and today stands at a miserable 89c and its management openly regrets the decision to come to the market in the first place.

Cuscal will need to convince investors strictly on its internal numbers and they have been impressive to date. In fact, pre-IPO growth numbers are impressive and better than most banks, most of the time.

The Australian’s DataRoom has reported the company made $23m on $247m revenue last year so at any other time it should be a walk in the park. But the park is not offering much of a welcome to any new listing just now.