Is Latitude planning To List On ASX This Year?

A leading consumer finance business in Australia and New Zealand, Latitude Financial Services offers a range of services which includes personal loans, car loans, credit cards, personal insurance, interest free and promotional retail. Backed by Värde Partners, KKR and Deutsche Bank, Latitude Financial Services is looking after over 2.4 million customers across Australia and New Zealand with its products. In August 2019, the company reduced the rate of its Low Rate Personal Loans to 9.99% per annum to bolster the competition and improve value for consumers.

Last year, when Latitude deferred the plans for an Initial Public Offering, it assured that it will keep on exploring the strategic options, which may include a future listing on the Australian Securities Exchange (ASX). As per recent market news, it has been speculated that Latitude may go for listing this year. Due to the recent launch of LatitudePay, new digital payments platform combined with gaining popularity in the new personal loans, many analysts believe that it is the right time for Latitude to launch its IPO. However, the company has not yet provided any details of the IPO or released a prospectus yet.

LatitudePay

Latitude has recently launched its new digital payments platform, LatitudePay. This platform was launched with one of Australia’s biggest and most respected retailers - Harvey Norman.

LatitudePay offers several benefits to Australians, which include:

• Better deal for shoppers who can sign-up in just 90 seconds and pay over 10 instalments with no interest or account fees;
• Consumers undergo a credit and ID check as part of the 90 seconds sign-up, supporting Latitude's commitment to acting responsibly;
• Leading merchant offer, facilitating in-store and online retail sales, with merchant service fees for purchases under $250 cut to zero until January 2021;

The credit and ID check of customers before using LatitudePay platform, demonstrates that Latitude is serious about following credit laws. With this platform, the company is trying to establish itself as a substation player in the Buy now Pay later space.

Overview of BNPL Space

As per, Zip Co Limited (ASX:Z1P), a leading player in the Buy now pay later (BNPL) industry, the total BNPL market share in the US and UK estimated at less than 1%.

Source: Zip Co Limited Reports

It is believed that the increasing awareness and a general decline of credit cards is driving BNPL consumer adoption. As per Australian Securities and Investments Commission (ASIC), the number of consumers who have used buy now pay later platform has increased by 5 times from 400k to 2 mn over the financial years 2015-2016 to 2017-2018 and along with this, the number of transactions has also increased from about 50k during in April 2016 to 1.9 mn in June 2018. Due to the exponential growth of this industry, ASIC has been overseeing the activities of the major BNPL players. Since April 2019, BNPL sector/products are formally regulated under the jurisdiction of ASIC.

What happened in 2018?

Last year, due to the leadership change and external market consideration, the plans for IPO were dropped by Latitude. At that time, the outlook of the Australian financial Industry was not looking good as there was a national inquiry going on regarding the misconduct in the industry. Sean Morrissey, CEO at that time, also resigned from his role due to health and family reasons and was replaced by highly experienced Ahmed Fahour.

Latitude Board

Ahmed Fahour (Managing Director and Chief Executive Officer )- In his 30 years of experience. Ahmed Fahour has served various senior executive roles with big firms. On the education front, he holds a Bachelor of Economics and Honorary Doctorate along with an MBA (Management in Business Administration) degree from Melbourne Business School. After being appointed as CEO, Ahmed Fahour took various initiatives to grow the company’s Business.

Greg White (Chief Customer Officer) – He has around 33 years of experience in the financial services Industry. Previously, as part of GE Capital since 2001 Greg held a various senior level positions across Australia and New Zealand and prior to GE Capital, he had a long career with Westpac Bank and AGC holding senior management roles in the consumer and commercial businesses. On the education front, Greg holds a Bachelor of Business Degree along with an MBA degree.

Adrienne Duarte (Chief Financial Officer)- Joined as Latitude CFO in July 2019, Adrienne Duarte has extensive experience in financial service industry which includes working with NAB Group for 12 years and working with various big firms like KPMG consulting, Marakon Associates, London and Coopers & Lybrand. On the education front, Adrienne Duarte holds a Bachelor of Economics degree as well as a MBA degree.

Major BNPL Players

Latitude is in direct completion with several BNPL players like Afterpay, Zip co limited, EML Payments Limited and many more.

In FY19, EML Payments Limited (ASX: EML) reported a 34% growth in its Group GDV (Gross Debit Volume) and 37% growth in Group revenue, as compared to FY19. The company also saw Record underlying EBITDA of $29.1 million in FY19, up 40% on pcp. EBITDA growth of EML has exceeded 30% in each of the last three years and the Group is well placed for future continued growth, driven by:

• Continued GDV growth from new and existing programs in each segment;
• The contribution to Group financials from the transition of an additional 100,000 salary packaging benefit accounts (by April 2021) through the company’s agreement with Smartgroup;
• The contribution to Group financials from the Flex-e-Card acquisition (incremental $4 million EBITDA);
• Full year contribution from ECE in Germany which launched in October 2018;
• An improvement in gross margins from self-issuance in Europe and Australia; and
• Continued focus on reducing costs and insourcing where possible.

In the last six months, EML’s stock has provided a return of 124.12% as on 3 September 2019. At market close on 4 September 2019, EML’s stock was trading at a price of $3.690, near to its 52 weeks high price of $3.940.

Like EML, Afterpay Touch Group Limited (ASX:APT) also reported significant growth in its income during the financial year 2019. Major highlights of FY19 are as follows:

• FY19 global underlying sales increased by 140% to $5.2 billion;
• Active customers of 4.6 million at end of FY19, up 130% on pcp;
• Currently on-boarding over 12,500 new customers per day;
• Active merchants of 32,300 at end of FY19, up 101%, and 35,300 currently;
• US underlying sales of nearly $1 billion in FY19;
• Over 200,000 UK customers on-boarded in the first 15 weeks, higher than the US at the same time post-launch;
• Total Afterpay pro forma income of $251.6 million, up 115%, and Afterpay Net Transaction Margin (NTM) of $126.1 million, up 126%
• Underlying free cash flow of $33.3 million, reflecting high return on capital employed (ROCE) business model and organically adding to balance sheet growth capacity.

During FY19, Afterpay welcomed the Government’s introduction of new Product Intervention Powers that sees the industry formally regulated by ASIC and showed its support for a Code of Practice for the ‘buy now, pay later’ industry with minimum standards and consumer protections.

In the last six months, APT’s stock has provided a return of 59.73% as on 3 September 2019. At market close on 4 September 2019, APT’s stock was trading at a price of $31.810, near to its 52 weeks high price of $32.130.

Zip Co Limited (ASX: Z1P) reported revenue of $84 million, up 108% on pcp. In FY19, Zip’s customers grew by 80% to 1.3 million while the transaction volume increased by 108% to $1,128.5 million in FY19. In the last six months, Z1P’s stock has provided a return of 96.05% as on 3 September 2019. At market close on 4 September 2019, Z1P’s stock was trading at a price of $3.790, near to its 52 weeks high price of $3.980.

One must note that, all these stocks are trading at higher levels and have provided significant returns in the last six months.

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