Humm have released their full year results as follows:

SOUND FINANCIAL PERFORMANCE BASED ON SECOND HALF RECOVERY

Strong balance sheet fundamentals

• hummgroup total receivables of $5.0b, up 18%

o  Commercial receivables of $3.0b, up 26%

o  Consumer Finance receivables of $2.0b, up 11%.

• Strong balance sheet with $125.1m in unrestricted cash and $0.7b of warehouse headroom.

• Fully franked final diviend of 1.25 cents per share bringing dividends for the year to 2.0 cents per share ona fully franked basis, representing a return to shareholders of 6.02%.

Improving returns from core businesses

• Statutory net profit (after tax) of $7.1m was up 145%. The second half Statutory net profit (after tax) of $13.1m represented a turnaround of $19.1m from the first half loss of ($6.0m).

• Normalised cash profit (after tax)1 of $60.6m was down 19% with positive second half performance from core businesses.

• Normalised cash profit (after tax)1 of $32.5m in 2H24 was up 16% on 1H24 mainly driven by a 4% increase in Net operating income and a 14% decrease in costs from the first half.

• Net Interest Margin (“NIM”) stabilised across FY24 at 5.5% with an exit NIM of 5.5% improving by 40bps from June 2023.

• Group Net Credit Loss/Average Net Receivables (“ANR”) was maintained at 1.8%.

• Management executed $13.2m in cost savings during FY24.

Executing on the customer

• Volume from continuing products of $3.8b, up 6%.

• Gross yield2 of 11.6%, up 50bps.

• Launch of humm Hybrid Loan Product in 1H25.

The Commercial business continues to demonstrate impressive operating leverage, with receivables growing by 26% with only a 4% increase in normalised operating costs.

Driven by growth in humm AU and our global businesses, the Consumer business delivered volumes of $2.3b in FY24 up 12%.

hummgroup has a differentiated and diversified funding platform supported by local and global banks andinvestment managers. This platform has allowed hummgroup to maintain growth while driving efficiency in itscapital structure.

At 30 June 2024 hummgroup has:

• $125.1m of unrestricted cash as at 30 June 2024.

• $0.7b of undrawn warehouse headroom at 30 June 2024, following the funding transactions

executed during the period.

• Issued over $2.0b of ABS during FY24, in both public and private placements.

In regards to a valuation

Based on the above figures I expect a normalised CNAT of $90 million CPAT in 2023/24 which is $75 million x 20% due to the anticipated decrease in costs,

Current valuation as follows: FY NCPAT $60.6 Million / 492m shares = $0.1232 per share

I will increase my PE to 6 now that the business is starting to turn around

So 6 x $0.1232 per share gives us a valuation of $0.7392 per share

But they also have about $125.1 million in unrestricted cash which is $0.254 per share

So $0.7392 + $0.254 = $0.9932 per share

The work Humm has been doing on diversifying credit sources is now yielding results. When finding interest rates finally drop the NPAT impact should be strongly positive for Humm.

The business is probably worth more than the above but after the last few years of poor management the jury is still out if the business will come good or get taken over, I do hold this stock in my portfolio and have done for quite a while which is why I have included some in my Strawman portfolio as I believe that the worst days are behind it and the next few years should be better than the last few.

Humm's share price has moved from the middle 40's to today's high of $0.69 which is mainly due to the buy back which has been going for a few months now and has cleaned out some of the shorters/traders that have kept the price low. With some good results in the half yearly results in late February this stock could go over $1.00 quite easily as there is still significant value here.

AA the Managing Director of Humm continues to buy shares on the market and currently has approx 125 million shares which I believe shows confidence with the company and with current price around $0.42 they are quite inexpensive.and are due for a re-rate

Chairman and founder Andrew Abercrombie continues to accummulate shares on market, including over $260k declared today. Previous purchases have not caught the attention of the market.

I guess mostly reprising my short straw from a couple of weeks ago and following on from @NewbieHK and @thunderhead.  Management have, I agree, done a really solid job - just look at the turnaround in the Commercial business.  Rebecca James appears to have a gift with the branding, marketing, communications side of the business. She's compelling every time I see her speak.

The issue in BNPL though is growth and scale and maybe its my small brain and lack of visionary spirit but I just cant see a strategic pathway from where they are to scale growth in UK/Europe and North America given the competitive set they are on the field with - Apple, PayPal, Square/APT... CBA...

There has to be I think serious consolidation in the sector... perhaps the chairman sees a few offers coming his way?

I'm less worried about the debt which they seem to have a grip on than the stretch into BNPL and how that's going.  Humm seem to be another caught in the middle - a little late to the BNPL party, weighed down by legacy structure and systems internally and not able to get the growth that the BNPL hype demands.  At the same time, their commercial lending business seems to be going well.

I just can't see a path to them carving out a competitive niche when the likes of Square/APT, CBA, PayPal, Apple etc are coming after them.  They've built some good products no doubt but surely they are an acquisition in waiting?  Can't imagine they won't have to raise capital if they properly start to execute on their UK & Canada strategy.

Disc: small holding in my SMSF (waiting for an acquisition premium)

@Curly,

Yes, HUM does have a high Debt/Equity ratio (297%) which needs to be considered in the company risks. At the time of writing I was relying on Simply Wall Street data. I have since checked this against the Company Financials (page 12, extract attached) Both match up. On the positive side the debt/equity is improving!

Disc: hold shares RL

Full ASX Announcement

Some very pleasing results in the 4Q21 business update this morning:

•  hummgroup 4Q21 transaction volume of $774.9m, up 57.3% on pcp
• Record quarterly BNPL segment transaction volume of $304.9m in 4Q21, up 68.7% on pcp
• Cards (Australia and New Zealand) 4Q21 transaction volume of $287.5m, up 44.3% on pcp with spend continuing to return across key categories
• Commercial and Leasing transaction volume in 4Q21 of $182.4m, up 62.2% on pcp
• Total hummgroup customers of 2.7m as at 30 June 2021, up 19.7% on pcp
• Continuing improvement in net loss (gross write-offs net of recoveries) of $30.2m in 4Q21, down 20.3% on pcp
• 1,362 new merchants integrated across Australia and New Zealand in 4Q21 including strong growth in key verticals of health, luxury retail, home improvement, and automotive
• Based on unaudited accounts, Cash Net Profit After Tax of $68.4m, up 121.1% on pcp1

Disc: hold shares IRL

@Gummidge, I hold shares in HUM for the reasons you pointed out and HUM is good value if the pivot to BNPL goes to plan. HUM is targeting niche clients with larger transactions including Dental & Health. BNPL is a highly competitive sector and HUM comes with some significant risks and weaknesses. @Bear pointed out 10 years of poor performance by Flexigroup. ROE has shrunk from 22% in 2012 to 5% last year. 

Stengths:

• Forecast Growth 24.8% (see chart)
• PE 15.9
• PEG 0.6 (cheap)

Key Risks:

• Debt $2.21 billion
• Equity $744 million
• Debt/Equity 297% (debt is not well covered by operating cash flow)

Weaknesses:

• Future ROE = 8.9% (Low for a growth company, would  prefer 20%,  and this is also proped up by borrowed funds)

Valuation:

HUM shareholders could be well rewarded if the BNPL growth continues, if interest rates stay low and if the debt can be serviced over the next 3 years. There's a lot of 'ifs' there and valuation carries the same level of risk!

• Forecast E (2023) = $82 million*
• Outstanding shares = 394 million
• E/S 2023 = 82/394 = 20c/share
• PE 15
• Value (2023) = PE x E (2023) = 15 x 20c = $3.00

*Simply Wall Street data (consensus 3 analysts)

DIsc: Hold shares

Track Record of Management, when they were called FlexiGroup: