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The indicative offer by African Bank Investments Limited (Abil) for retailer Ellerine could offer furniture consumers more competitively priced loans, RMB Asset Management retail analyst Evan Walker said yesterday.

August 22, 2007 By Tom Robbins Cape Town – The indicative offer by African Bank Investments Limited (Abil) for retailer Ellerine could offer furniture consumers more competitively priced loans, RMB Asset Management retail analyst Evan Walker said yesterday. This was a major synergistic benefit of Abil’s R9.85 billion offer, particularly as competition between lenders for a slice of the consumer finance pie heated up. Walker said the offer by the mass market lender for Ellerine, which owns chains such as Ellerines and Beares, “strategically made 120 percent sense”. Ellerine gained 17.02 percent to R70.80 on the JSE yesterday, after earlier trading as high as R75.40. The general retailers sector rose 1.97 percent. Meanwhile, Bloomberg reported that Ellerine’s bigger rival, JD Group, failed last year to partner with one of the country’s big banks. It then decided to split its retail and consumer finance businesses. Walker said that apart from allowing for better-priced loans, the acquisition would add economies of scale. Under the new National Credit Act, he expected consumers to shop around more for the cheapest loans, as greater disclosure made them more aware of the real costs. The emergence of dominant international third-party lenders such as GE Capital had created businesses with the critical mass to out-compete in-house retail lenders. Banks and mass-market lenders were starting to do this locally. The traditional furniture retail and finance model, such as that of Lewis, was “under a bit of risk”, Walker said. But Lewis’s exposure to the bottom end of the market would give it some protection, as these customers did not have bank credit cards and did not necessarily understand all the disclosure under the new act. Abil chief executive Leon Kirkinis said the credit act had created a more competitive consumer lending environment. There was now a unified market where, previously, mass-market lenders such as Abil, bigger banks and credit retailers had operated under different legislative regimes. Moreover, he said, the credit act allowed lenders greater flexibility in interest rates, contributing to a more competitive environment. Ellerine chief executive Peter Squires said he would comment only once the due diligence had been completed.