SBS Bank, through its subsidiary Finance Now, has bought The Warehouse Group's financial services group for $18 million. The sale is expected to be completed in five weeks.
The sale excluded Diners Club and some insurance products.
Ms Kinnaird said the group's foray into financial services had been a drain on capital for shareholders.
''We view the divestment as strategically sensible, given the expected losses for the foreseeable future and high demand on management time and capital.''
Forsyth Barr estimated the sale was well below book value. However, the risk/reward outlook for persisting with financial services was marginal, given a significantly lower payback than initially anticipated,'' Ms Kinnaird said.
The Warehouse reported a material decline in financial services earnings in the first half of the 2017 financial year and forecast for further losses for the medium-term and impaired goodwill from recent acquisitions.
''This was a key disappointment area in the recent result.''
The group's move into financial services had been an investment in both capital and management and time while the payback had continued to take longer than anticipated.
The Warehouse indicated losses were expected to continue for the next few years and capital investment might be required in systems, she said.
''We view the divestment as strategically sensible, removing a distraction and ensuring further capital is not utilised for a business unit which has continued to underwhelm.''
There was still significant change to come in The Warehouse's retail business, particularly the Red Sheds, the primary driver of earnings and valuation for the group.
Divesting its loss-making business improved the group's valuation multiples relative to peers. The group was now trading modestly below its New Zealand sector peers and the share price remained above Forsyth Barr's view on fundamental value, Ms Kinnaird said.
Forsyth Barr retained its cautious view on the timeframe, and costs, to implement material business change, along with the long-term outlook for the group.
The discount end of the retail market was becoming more competitive, she said.
Despite acquisitions, Red Sheds remained the key contributor to group profit. Reinvestment over the past four years had reversed the decline in same-store sales. But margins remained low.
The improved earnings trajectory in 2016 was encouraging, although first-half trading in 2017 disappointed as margins were under pressure.
The value of the New Zealand dollar was an important driver of gross margins as the majority of purchases were in United States dollars. All market participants were affected and retailers were unlikely to be able to pass on the full impact of any unfavourable foreign exchange movements.
The appreciation in the dollar through most of last year would likely help in the future.
The focus of the new group strategy was on leveraging the existing asset base and reducing complexity.
''Execution will be critical and we continue to have a number of questions on the strategy and timing.''
The Warehouse had invested significant capital during the past four years and the return on investment was lacklustre, Ms Kinnaird said.
Forsyth Barr retained a cautious stance and had a target share price of $2.20 for the group. The shares last traded at $2.28.
