Latitude Withdraws Its IPO From Market; What Investors Need To Know

Latitude Financial Group Limited is a technology-driven financial company with primary activities like digital payments, instalments and lending platform. The company assists its customers and merchants and other commercial partners through its advanced products and services. The company’s services span across Australia as well as New Zealand to serve through payment and instalments products (L-Pay) and lending products (L-Money).

The company’s established network of commercial partners enables customers to transact through its unique Business-to-Business-to-Consumer and Direct-to-Consumer distribution model.

Latitude’s IPO

Over the past few days, it has been a roller coaster ride for the investors looking forward to investing in Latitude’s initial public offering (IPO). The company lodged its prospectus with the Australian Securities Exchange on 26 September 2019 with an intent to attract investors through its IPO. However, on 16 October 2019, the company withdrew its IPO from the market.

On 16 October 2019, Latitude’s website reads -

“Latitude Financial announced today the withdrawal of its initial public offering from the market following the conclusion of the bookbuild last night”

According to Latitude’s chairman, Mike Tilley,

“Despite extensive engagement with prospective investors the Board and shareholders have determined not to proceed with the offer”

The chairman added that the company board and the shareholders were conscious about the significance of ensuring a strong aftermarket for Latitude.

Prior to the withdrawal of the IPO, the company also altered the price of its IPO that was initially offered at a price of $2.00 to $2.25. According to recent media news, the company repriced its initial public offering to $1.78 per share. The company’s initial price range for the offer was $2.00 to $2.25 each wherein 622.4 million shares valued at $1.24 billion to $1.40 billion were initially offered under the prospectus.

Following, the lodgement of the prospectus with the ASX, the date of opening the broker firm was 4^th October. The same was scheduled to close by 14^th October 2019. In addition to this, the company had announced the bookbuild to determine the final price of the share on 15^th and 16^th of October 2019.

Key Dates (Source: Company Prospectus)

The company’s offer of the IPO was not underwritten. The Joint Lead Managers of the offer were Goldman Sachs, Macquarie Capital and UBS.

Amidst the turbulent journey of the company’s IPO, Latitude witnessed a major development for LatitudePay. On 15 October 2019, Latitude Financial declared a new partnership with Virgin Australia. Under the partnership, Latitude shall make LatitudePay available to the customers of Virgin Australia to purchase flights and pay for them later (from next year).

The customers of Virgin Australia shall avail the services of LatitudePay from the first half of the year 2020 for purchasing flights amounting up to $1000 only. In addition to this, the company shall provide an option of interest-free instalments, in the next year, for travel over $1000 to the customers of Virgin Australia.

Latitude’s Past Financials

Notable highlights of the company’s financial performance over the years are:

• Growth in cash NPAT of 15.7% from FY17 to FY18;
• Higher NPAT from $123.9 million in FY17 to $174.8 million in FY18 on a pro forma basis and $17.5 million to $44.3 million on a combined basis;
• Volume growth of 4.7% from FY17 to FY18;
• Growth in gross loan receivables of 7.7% from FY17 to FY18;
• Decrease in the adjusted cost to income ratio from 43.1% in FY17 to 40.4% in FY18 on a pro forma basis and 50.7% to 50.4% on a combined basis;

Let’s now take a look at what products does the company offer to its customers.

Products offered by Latitude

As at 30 June 2019, the count for the Latitude’s customer accounts stood at 2.6 million out of which 51% have been active for more than half a decade. The products offered by Latitude to the customers in Australia and New Zealand are broadly classified under L-Pay and L-Money.

Latitude Credit Cards (Source: Company Website)

L-Pay

Under L-Pay are Latitude’s payments and instalments products which serves the customer’s need of purchasing products or services through a range of payments and instalments solutions for the business and customer to carry out transactions. LatitudePay and Genoapay are the company’s products that enable the customers to initially make a purchase on a zero-interest basis and later paying them back through regular payments over equal weekly instalments.

The other products under L-Pay are Gem Visa, GO Mastercard and CreditLine. These products help the customer to make a purchase on credit and interest-free terms for a period of three to 60 months.

L-Money

Under L-Money are Latitude’s lending products which assist the customer needs of borrowing money in a convenient manner like online, over the phone, as well as via brokers and white-label commercial partners. One of the products under L-Money is Credit cards (28° Global, Infinity Rewards, Low Rate), which are offered directly to customers online through which customers make a purchase on a rotating credit basis.

Further, the company provides Personal loans (for a variety of purposes) and Motor loans (for purchasing cars, motorcycles, boats and recreational vehicles). The company’s motor loan facility is limited to Australia only. However, personal loan facilities are available to the customers in Australia as well as New Zealand under a relationship agreement.

Business enabling technology of Latitude

The technology developed by Latitude in the financial furthers:

• Enhanced Customer experience through new, digital product developments and online self-servicing;
• Integration with the merchant and commercial partners to deliver the customer insights to the merchant and commercial partners;
• Opportune decision making and buyer risk assessment through credit-decisioning systems, Internal Bureau, credit bureau relationships and other digital data sources;
• Online customer management systems help in servicing customers efficiently.

Sources of Revenue and Funding

The company generates revenue from multiple sources, including net interest income, net insurance income, and other operating income to meet its expenses.

Net interest income includes:

• Interest received from customers on instalments products and other company products;
• Merchant service and transaction fees paid by the merchant and commercial partners;
• Establishment, annual, account keeping and other fees, including late fees, charged to customers; less, interest and other associated costs of establishing and maintaining its various funding sources;
• Third-party commissions

Net insurance income of the company includes the premium income generated from the credit insurance business with Hallmark Insurance.

Other operating income of the company includes interchange income, statement fees and other fees and charges.

The company has developed a funding platform along with international and domestic institutional financiers and capital markets access. The main features of the company’ existing funding structure are mentioned below:

• 07% weighted average cost of funds (external debt only, as at 31^st December 2018);
• Diversified funding platform with a capacity of over A$1.4 billion23 to support future receivables growth;
• Actively managed maturity profile with no maturity or call dates for products which are the subject of ongoing origination prior to 2020 as at 30^th June 2019;
• Raising of funds in Australian dollars and New Zealand dollars (the same currency as its loans to customers).

Future forecast

The company is believed to be well-positioned by the managers to fuel continued growth and performance in the near future. In addition to this, for the period of next 12 months till 30 June 2020, the company is forecast to achieve:

• Adjusted Return on Equity (ROE) of 20.7%;
• Cash NPAT for FY21 of A$287.6 million representing growth of 7.6% (relative to the prior comparable period (PcP));
• Volume growth of 7.7% relative to the PCP; and
• Gross loan receivables growth of 4.2% relative to the PCP.

With the company’s inability to progress the public listing at this stage, Latitude’s Managing Director and CEO, Ahmed Fahour, believes that the company shall continue to execute on the growth strategy with the support of its shareholder group.

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