Latitude to benefit from revenge spend: Fahour

Latitude Group (ASX: LFS) didn’t seem to be able to turn a trick today, with the non-bank personal lender down around 1% at the close despite increasing cash profit by 4% in FY21 to $232m.

Embedded within today’s result were some impressive results, including strong momentum in personal and auto loan volumes, which were up 42%.

Overall, for the 12 months through to December 31, Latitude more than tripled its net profit to $160m which was in line with Bloomberg expectations.

Highlights within todays mixed bag result included:

• Operating expenses fell 4% to $387m

• Total Operating Income decreased by $107.6m or 11.5% to $826.6m

• Return on equity of 17%

• $2.3bn headroom in warehouse funding facilities

• The full-year payout to 15.7 cents, representing a 7.7% dividend yield

• Total volume rose 4.3 per cent over the year, to $7.3bn

• Personal and auto loans volume up 46% in Australia and 27% in NZ

Key fundamentals

In the last three years, Latitude has jumped from the number five provider of unsecured personal loans to the second largest, overtaking Westpac (ASX: WPC),National Australia Bank (ASX: NAB) and ANZ Bank (ASX: ANZ), and is only beaten by Commonwealth Bank (ASX: CBA).

Following on from the recent acquisition of the Symple’s platform, bought to hasten the company’s growth, Latitude announced that the company is now buying BNPL company Humm's consumer finance business for $355m (150m shares and $35m cash).

While Symple provided a tech platform that basically meant not having to spend two to three years investing in a modern receivables platform, CEO Ahmed Fahour noted that Humm’s (ASX: HUM) consumer finance business represents another exciting acquisition.

“With the Humm consumer business, not only will it deliver to us $100m profit before tax… but it allows us to cross sell even more personal loans than what we do in our existing portfolio,” he said.

Record February

Latitude expects consumer spending to return to pre-pandemic levels as confidence picks up, and Fahour believes spending activity is already on the rise following “self-imposed lockdowns” through December and January.

He suspects a predicted “revenge spend” in 2021 once lockdowns are eased has the capacity to exceed expectations.

Following the quieter weeks that hit the economy either side of Christmas and New Year, Fahour also believes Latitude was on track for a record February.

He expects rising borrower confidence to provide a tailwind for Latitude’s credit products that encourage customers to spend on household and electronic goods as stimulus unwinds.

“The excess cash sitting in the economy is the single biggest challenge we have had to deal with,” Fahour noted.

Consensus does not cover this stock.

Based on Morningstar’s fair value of $2.28, Latitude appears to be undervalued.