humm group Limited

HUM Details

Investor Strategy Presentation Highlights: humm group Limited (ASX: HUM) offers consumer finance products (such as bundll, humm90 and hummpro) in Australia and New Zealand for millennials. It caters to over 2.7 million customers in Australia, New Zealand, the UK, & Ireland. On 27 October 2021, HUM hosted an Investor Strategy Day online and provided a detailed outlook of its established and growing businesses and plans to expand through partnerships and in overseas markets.

• The company declared to restore dividend distribution (~30-40% payout ratio) from 1HFY22.
• HUM plans to explore the sale of its New Zealand commercial business.
• The company held ~$65.2 million unrestricted cash as of 30 September 2021.

Q1FY22 Key Takeaways:

• In October 2021, HUM declared the pricing of ABS (asset-backed securities) worth ~$390 million backed by a fully amortised pool of secured equipment finance and commercial auto receivables originated via flexi-commercial.
• The company reported ~2.7 million total customers at the end of Q1FY22, up by 6.1% YoY due to a robust increase in its BNPL customers.
• The total transaction volume amounted to ~$763.3 million in Q1FY22 versus ~$546.8 million in Q1FY21 due to the growth momentum of a diversified portfolio.
• The credit performance which is gross write offs net of recoveries stood at ~$24.0 million, up by ~9.3% YoY due to growth in receivables.

Transaction Volume Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces changes in interest rate, adequate funds for consumer financing, technological advancements & glitches on its platform. It faces different regulations across diverse verticals and geographies.

Outlook:

• The company will conduct a virtual AGM (Annual General Meeting) on 18 November 2021.
• The company launched product humm in 2HFY21 in the UK and plans to go live in Canada by 1HFY22 focusing on healthcare, automotive, home and home improvement, and luxury retail verticals in both countries.
• HUM plans go-to-market with products- bundll and hummpro and target new markets, new alliances, and new audiences for expansion.
• In FY21, HUM signed new alliances with banks and expects this partnership channel to lead to considerable customer base growth. HUM aims to add ~250,000 incremental customers in FY22.
• HUM anticipates BNPL to deliver up to ~40% of gross income for the group in the medium-term with UK and Canada contributing at least ~25% of the segment income.
• The Commercial Australia segment is anticipated to double its FY21 gross income in the mid-term.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of HUM gave a negative return of ~12.10% in the past three months and a negative return of ~6.17% in the past six months. The stock is currently trading lower than the 52-weeks’ $0.780 - $1.360. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ median EV/Sales multiple, considering its negative cash outflows, and leveraged balance sheet in FY21. For this purpose of valuation, few peers like Credit Corp Group Limited (ASX: CCP), WISR Limited (ASX: WZR), Money3 Corp Limited (ASX: MNY), and others have been considered. Considering the current trading levels, increase in transaction volume, customer base in Q1FY22, upside in valuation, plans to launch humm product in Canada and to widen BNPL income & customer base in FY22, and key associated business risks, we give a ‘Speculative Buy’ rating on the stock at the closing price of $0.830, down by ~1.191% as of 9 November 2021.

HUM Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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