Hi @NewbieHK,

I'm still in the deep dive stage myself, thus the small c. 1% starter position in my portfolio. As a starting point, these two articles from Katana Asset Management are definitely worth reading: https://www.livewiremarkets.com/stock_codes/asx-ppm

The first major risk is Net Interest Margin (NIM). In simple terms, NIM is the difference between what rate the lender is able to borrow the money at versus the rate they lend it at. Competition dictates the rate it is lent at, and this is generally less of the issue. The bigger question mark is around what cost they are able to borrow money in the wholesale markets. The second major risk for any lender is of course bad and doubtful debts (BDD).

Interestingly, as noted by Romano Sala Tenna: the fear around rising rates actually provides a tailwind, insomuch as the pressure on re-pricing the back book (loans previously written) is lower and re-financing also reduces which adds to the tenure of loans. Another risk may be the rise of Fintechs in this space. However, only a handful of fintech’s actually do the financing piece – and this is where the real margin is to be had.

The top 20 of PPM hold an extraordinary portion, something like 99% of all shares on issue (SOI). However, circa 60% is held by the number 1 shareholder, KKR. This is because Pepper Money was acquired by KKR for $657 million in November 2017 and was delisted from the ASX. On 25 May 2021, Pepper was then relisted on the ASX (Aus and NZ division). I'm not sure who the major sellers are at this stage, with the share price down significantly since listing, but I plan to find out.

On the surface, I agree that this looks very compelling from a valuation perspective. But, I've got more work to do and channel checks before I consider scaling up my position. Let me know what you find if you dig further.

Cheers,