Latitude Financial Braces Up to give Australia its Biggest IPO in Recent times

When shares of a company starts trading on a stock exchange, it is always a special event. While journalists and media houses miss no chance to discuss it, experienced investors and industry experts carefully analyse the goals and nature of the IPO. However, investing in new issue does not save one from doing their homework and gather all possible insight in the ever-evolving business world.

This article revolves around a much-anticipated IPO that the Australian market is expecting next month. Latitude Financial Services, often referred to as Latitude or Latitude Financial has geared up to list its shares on the Australian Securities Exchange (ASX). What’s special about the IPO is the fact that the event would mark the biggest IPO that the country has seen in the past few years.

Before diving into the details of this awaited event, let us understand the company and its business:

Latitude Financial Services

Headquartered in Melbourne and regarded as one of the largest non-bank lenders in Australia, Latitude Financial Services is a digital payments and finance business (instalments and lending platform) in the ANZ region. The company transitioned from GE in 2015, when a consortium of investors comprising of Värde Partners, KKR and Deutsche Bank acquired the business from GE. Presently, the company is a leading digital payments, instalments and lending player across New Zealand and Australia.

The company products include loans, credit cards and insurance services.

Latitude has been awarded by Canstar and Mozo and aims to partner with its customers to aid with their financial stance. The company has over 2.6 million customer accounts and supports over 1900 merchant partners.

Company Products (Source: Company’s Website)

The Latitude IPO

Expected in mid-October 2019, the Latitude IPO would value the company at approximately $3.7 billion and would be one of the biggest events in the recent years, and the largest IPO of 2019 as it seeks to raise approximately $1.4 billion. It should be noted here, that this IPO is the company’s second attempt to go public, after the same was tried last year, but was not successful due to unfavourable market conditions, high interest rates and shifts in the company’s management.

Moreover, the listing would value the company at up to $4 billion. It is anticipated that the current lower rate scenario prevailing in Australia (the RBA is expected to cut official rates yet again) would catalyse the company’s profits, by shunning down funding costs while controlling the bad debts.

Latitude Financial Services’ Growth Plans

On 26 September 2019, the company lodged a prospectus with the ASIC or Australian Securities and Investments Commission and offered investors with the chance to buy the fully paid ordinary shares in the company via the upcoming float.

Let us glance through the company’s significant operational scale, profitability and growth plans, as disclosed in the prospectus:

• As at 30 June 2019, the gross loan receivables amounted to $7.7 billion;
• FY18 and forecast FY19 Adjusted EBITDA growth is of 10 per cent and 10.1 per cent, respectively;
• For the year ending 2020, the Forecast Cash NPAT is of $287.6 million;
• The FY18 and forecast FY19 Cash NPAT growth is of 15.7 per cent and 12 per cent, respectively;
• The company presently has 2.6 million customer accounts and over 1,950 merchant partners in its kitty;
• Forecast Adjusted Return on Equity is of approximately 20 per cent for the six months ending 30 June 2020 (on an annualised basis);
• The suggested annualised dividend yield for the year ending 30 June 2020 would be in the range of 4.6 per cent to 5.2 per cent.

Latitude Financial Services’ Prospectus

Now that we understand the company’s current positioning and plans, let us acquaint ourselves with the details of the IPO, as disclosed in Latitude’s prospectus:

• Shares would be offered to investors at a price range of $2 to $2.25 each;
• Approximately 622.4 million shares with a total value of $1.24 billion to $1.40 billion would be offered;
• The trade would commence on the Australian Securities Exchange on a conditional and deferred basis on 18 October 2019;
• The offer comprises a broker firm offer and an institutional offer, and no general public offer of shares would be made for the institutional offer:
  • The broker firm offer would open on 4 October 2019;
  • The institutional bookbuild would occur on 15 October 2019 and 16 October 2019.
• The current owners of the company, KKR, Värde Partners and Deutsche Bank would own approximately 54 per cent of the company and maintain their shareholding until the start of the second trading day post the company’s release of its financial results next year, for half year ending 30 June 2020.

(Source: Latitude’s Prospectus)

What Does the Core Team Say?

Pleased by the on-going events, Chairman Mr Tilley stated that, “the business has a strong financial profile and solid growth forecasts, underpinned by ongoing investments in technology that will deliver new and satisfied customers and robust returns.” He believes that the company’s growth is heavily backed by its diverse funding profile, which offers substantial funding capacity.

It should be noted here that as at 30 June 2019, the company had undrawn facilities worth more than $1.4 billion. The listing with ASX would be a cherry on the cake, enhancing financial flexibility.

MD and CEO Mr Ahmed Fahour feels that the company was well-positioned to capitalise on growth opportunities in the retail, service and finance sectors across the ANZ region. Latitude’s significant investment in technology and innovation would empower customers and attract new commercial partners, continues Mr Fahour, a Lebanese Australian businessman, who commenced the role of CEO in 2019.

Latitude 2.0- The Revised Business Strategy

Under the leadership of Mr Ahmed Fahour, the company developed a revised business strategy, referred to as Latitude 2.0. The intent of the strategy was to analyse the growth opportunities present with the company, pertaining primarily to payments, instalments and lending. It also aimed to drive innovation in digital products that were easy, transparent and inclusive. The four pillars of the strategy are discussed under:

Upcoming Floats on the ASX

Speaking of IPO’s, it would be interesting to know about other players who have decided to go public and launch their shares on the ASX. The below table outlines few of the upcoming floats that an investor should watch out for:

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