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Pepper upgrades guidance

Thu 25 Nov 21, 3:00am (AEST)
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Key Points

  • Stock significantly undervalued relative to consensus forecasts

Due to the phasing out of covid restrictions, and the strength of originator growth to October, recently listed Pepper Money (PPM) has increased guidance for CY21 net profit (NPAT) of $135m to $138m, up 12.5% to 15% from the IPO Prospectus Pro-forma NPAT forecast of $120.7m.

The market relished in Pepper’s guidance that will see it easily exceed prospectus forecasts with the share price rising by as much as 9% to $2.40 in early trading on Thursday.

Commenting on revised guidance, Pepper Money’s CEO, Mario Rehayem notes in the 10 months to October the company has delivered $5.1bn in Originations on Mortgages and $1.6bn in the Asset Finance business.

“The investment we have made, since starting Asset Finance in 2014, is playing out not just driving in the scale and growth being achieved, but in how the business continues to attract new partners and how it is delivering record customer and product NPS,” Rehayem said.

“The prudent approach we took to how we forecast BBSW in the IPO Prospectus means we will exit 2021 with the Net Interest Margin (NIM) for Mortgages in line with the IPO Prospectus. This is also the case for Asset Finance NIM.”

Typically serving customers who are overlooked by the big four banks, Pepper Money currently offers three broad categories of products including mortgages, asset finance, and loan and other servicing.

One of A&NZ’s largest non-bank lenders, the company funds customers through securitisation programmes, and is currently tapping the debt market to raise up to $800m via the sale of asset-backed securities.

Information sent to potential investors suggests the deal would be backed by a prime pool of fixed rate first charge auto and equipment loans originated by Pepper Asset Finance.

The company is currently trading at a 43.5% discount to a consensus target price of $3.30 and is forecast to deliver a FY21 dividend yield of 5%.

The company is below its 20-day simple moving average, which despite the recent kicker to the share price, appears to be trending lower.

Written By

Mark Story

Editor

Mark is an award-winning investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics, a diploma in journalism and has completed the Institute of Directors course. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content.

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