IEG Holdings sells $3.4m OMF stake

FLASH NOTE

VALUE RANGE IEG Holdings sells $3.4m OMF stake

USD 6.33 ? 7.00

140 120 100

80 60 40 20

0

IEGH 12m Price Rel. vs. OTCQX Composite (darker)

Friday, 23 June 2017

$3m cash raised for expanding loan book

IEGH (OTCQB:IEGH) serves the retail near prime, but underbanked, US online lending market with USD 5,000 and 10,000 loans. IEGH sold OneMain Financial (OMF) shares it recently acquired following its all paper tender offer for OMF, after OMF declined, as we suspected, to consider cost savings and strategy changes proposed in a letter to the OMF board. IEGH took the view that with less than 5% of OMF there was no possiblity of influencing a board that does not want to listen. Our IEGH valuation is raised 10c reflecting a slightly lower risk adjusted WACC as IEGH moves closer to our forecasts and accumulates cash to fund further lending. Notwithstanding stock volatility, the company continues to deliver on promises.

IEGH sold 100% of its OMF stake for $3.4m cash;

Cash on the balance sheet consequently rises to $3.7m;

Forecast $3m used for new lending in line with our revenue estimates;

We expect management to commence a share buy-back;

IEGH continues to make good on its catalysts (see investment case).

ACF Equity Research Ltd is regulated by the Financial Conduct Authority. FRN 607274.

Page 1 of 8

AICEEGLHIBOELRDTIYN&GSSTISOANECLIISEANTCLOIEFNATCOF FEQAUCFITEYQRUEISTEYARRECSHEALIRMCIHTELDIMITED

IEG Holdings sells $3.4m OMF stake

Friday, 23 June 2017

Above we show full dilution (FD) and expected dilution (Exp D). IEGH shares in issue at the date of this note are 12,754,066 which is 9,714,186 plus 3,039,880 shares issued by IEGH in exchange for 151,994 OMF shares. We assume there are not dilutive effects over our 5-yr valuation horizon.

Investment Case

Competitive background IEGH is a disruptive online business attacking the traditional bricks and mortar consumer lending market. The Company's cash cost acquisition (CCA) of loan customers is 4-6% vs. traditional bricks and mortar CCA costs of 8-10%. IEGH targets the near prime loan market (no subprime lending) another differentiator from competitors, such as OneMain. IEGH prides itself on repeat business and positive customer feedback offering a same-day turnaround in which cash is delivered to customer accounts. Process and contracts are transparent without hidden costs, such as severe technical small-print penalties, for the client. Many companies rely on small print penalty payments for significant margin contributions. Interest rates are in line with credit card borrowing (IEGH average APR 28.9%) vs. 400% and above for pay-day-loans. The Company has a largely automated highly consistent loan approval process.

Compared to IEGH's competitors such as bricks and mortar OneMain, IEGH has created a pertinent, potentially dominant, brand in Mr. Amazingloans with a simple transparent offering (USD 5k and 10k loans); lends at socially acceptable rates; has an attractive, efficient, fast and convenient loan delivery mechanism; targets the lower risk near prime only market; robust consistent approval process; has a lean cost model. IEGH has a strong growth profile, is delivering, has a lot to "teach" its competitors and value to add to investors.

Low distribution costs online - The online strategy lowers costs of customer acquisition (CCA), makes the company highly scalable and suggests that once IEGH hits breakeven, incremental revenue will rapidly fall through to EBITDA and FCF. Our estimates reflect this view. Bricks and mortar OneMain would struggle to credibly make the same claims, in our view.

Growth market ? The FDIC estimated in 2013 that 1 in 13 US households were underbanked (7.7% of pop. or 9.6m households). The Centre for Financial Services (CFS) estimated that IEGH's product category ? short term credit ? grew 37% from 2012-14 whilst single-payment credit, the primary competing product category grew 0.1%. Given statistical error, this suggests to us that the single lump-sum repayment market is probably contracting in favour of IEGH's instalment based market. It strikes us that bricks and mortar OneMain investors may well be ambling towards a long painful decline, the worst type in our view due to the opportunity cost of capital.

Management skill - CEO and founder Paul Mathieson and COO Carla Cholewinski have considerable experience in the industry.

Catalysts for further valuation upgrades

Delivery of FCF and EBITDA breakeven 2Q17E (achieved 1Q17); dividend payment (achieved 1Q17); expansion of loan book capability (achieving); share buy-back, reignited organic growth.

Page 2 of 8 ACF Equity Research Ltd (FRN 607274) is an AR of City & Merchant Ltd (FRN 154182) which is authorised and regulated by the Financial Conduct Authority.

Friday, 23 June 2017

IEG Holdings sells $3.4m OMF stake

2014A 2015A 2016A 2017E 2018E 2019E 2020E

2014A 2015A 2016A 2017E 2018E 2019E

2014A 2015A 2016A 2017E 2018E 2019E

2014A 2015A 2016A 2017E 2018E 2019E

Forecasts

Revenue

NI M%

12,000

100%

10,000

10,171 -100%

8,000

7,459

6,000

5,024

4,000

2,000

2,135 1,835

529

0

-300% -500% -700% -900% -1100% -1300%

FCF

EBITDA

M%

10,000 8,000 6,000 4,000

100% 9,007

0%

6,547

-100%

4,401

-200% -300%

2,000 723

0

-2,000

-4,000

-3,311

-2,778

-3,979

-6,000

-400% -500% -600% -700% -800% -900%

Net Income

6,000

FCF M% 100%

4,000

3,730 0%

2,000

2,006

0

-2,000

-1,722

-4,000

-6,000

-4,764

-5,606 -6,009

-100% -200% -300% -400% -500% -600%

-8,000

-700%

Efficiency

600

400

Efficiency EBITDA M% FCF M% 517

383

200

0 -50 -90

-200 -239

-400

-600

-800 -1,000 -912

EBITDA M% 200% 100% 0% -100% -200% -300% -400% -500% -600% -700% -800% -900%

Our forecasts are based upon management guidance and our own sensitivity analysis. We focus on cash proxies (EBITDA) and free cash flow (FCF). However, Net Income remains important for assessing elements of balance sheet strength, nevertheless we are strongly of the view that only cash matters.

ACF Equity Research Ltd (FRN 607274) is an AR of City & Merchant Ltd (FRN 154182) which is authorised and regulated by the Financial Conduct Authority. Page 3 of 8

IEG Holdings sells $3.4m OMF stake

Valuation

Friday, 23 June 2017

(12m) raw

60.00% 40.00%

y = -5.2915x - 0.0013 R? = 0.0159

20.00%

IEGH

0.00% -1.50% -1.00% -0.50% 0.00% 0.50% 1.00% 1.50%

-20.00%

-40.00%

-60.00%

-80.00%

OTCQX Composite

Note: We assume the conservative Debt / Equity target mix 10%, up from 0% at initiation. It is likely that IEGH will raise this target ratio in the future.

IEGH is currently debt free. In our 2016 IEGH initiation note we assumed a Debt/Equity mix of 0% which produced a higher WACC. Our new higher WACC reflects IEGH's higher volatility and delayed FCF positive inflection point risk.

Note: Close price on front page of this ACF research note is based on shares in issue (NoSh) on 16/06/2017 of 12,754,066.

Page 4 of 8 ACF Equity Research Ltd (FRN 607274) is an AR of City & Merchant Ltd (FRN 154182) which is authorised and regulated by the Financial Conduct Authority.

Friday, 23 June 2017

IEG Holdings sells $3.4m OMF stake

P&L, Cash Flow and Balance Sheet forecasts

We assume cash flow from financing of USD 3.4m to date. We also assume that USD 3m of the USD 3.4m raised from financing is used to expand the loan book as per our current forecasts.

Our cash and cash equivalents FY17E forecast is approximately 1m, after some 3m is used to fund expand the loan book.

Source: ACF Research Estimates; Company reports.

ACF Equity Research Ltd (FRN 607274) is an AR of City & Merchant Ltd (FRN 154182) which is authorised and regulated by the Financial Conduct Authority. Page 5 of 8

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