PEP Details

Pepper Group Ltd. (ASX: PEP), the non-banking lending group, has gained attention since 2016 when its loan book surged by 36% compared with the banking sector’s 6.5% credit growth.

On September 25, 2017, the group’s stock charged high by 4.3% as KKR Credit lifted its bid for PEP with the deal value being raised to A$682 million from A$657 million of earlier offer. Particularly, PEP received an improved proposal from Red Hot Australia Bidco Pty Ltd, owned by KKR Credit.

Perpetual Investments Ltd, which is Pepper’s top shareholder, was displeased with the earlier offer which the lender had agreed in the month of August. However, the sweetened offer price of A$3.70 now includes a special dividend of up to 10 cents per share as at dividend record date. The Pepper Board has now unanimously recommended for the revised proposal. With this move, KKR is said to gain a part of the Australia’s A$1.7 trillion mortgage market and investors are said to cash in at a 42% premium to its IPO price. Pepper shares are now trading at a price which is just below the offer price of A$3.70, and well above the 2015 IPO price of A$2.60. The shareholders’ meeting is due in November for voting on the proposal, which is expected to be implemented in December 2017 if approved.

On the other hand, the group was lately advised by South Korea’s regulator that its South Korean mutual savings bank, Pepper Savings, has been impacted by changes to regulations related to BIS capital ratios. The bank is required to increase the BIS ratios by at least 8%, and this will be effective from 1 January 2018.

PEP stock has been up 34.6% in last one year (as at September 22, 2017) and is trading close to its 52-week high price. Subject to market conditions, and exclusive of performance fees, Pepper is targeting an adjusted NPAT of at least $67.5m for CY17. Given the current set of developments, we give a “Hold” recommendation on the stock at the current price of $ 3.65 

Growth in Income and NPAT (Source: Company Reports)

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