Pepper Money’s initial public offering plans are gathering momentum as analyst research is released on the Kohlberg Kravis Roberts-owned company to coincide with management meetings this week.
It comes after a strong debut by non-bank lender Latitude Financial on Tuesday, with KKR always expected to swiftly ramp up its Pepper IPO plans if Latitude, of which it is also a partial owner, was well received by the market.
Analysts at Credit Suisse say Pepper Money has lending assets under management of $13.3bn, 80 per cent of which are mortgages and the remainder being asset finance.
It generated $106.3m of net profit last year and is set to generate $120.7m of profit this year.
The return on equity is expected to be 20.6 per cent this year.
The analysts believe that the value of Pepper would be akin to smaller non-bank peers at the lower end and at the upper end, around the value of the average bank peer group.
Banks trade at between 18.8 times and 14.1 times cash net profit, while smaller banks and non-banks trade at between 14.4 and 7.9 times, according to Credit Suisse research.
Established in 2000, Pepper Money operates in mortgages, specialist real estate loans and asset finance for used cars, caravans and other assets as well as broker servicing for the Australian and New Zealand market.
Prime loans account for 48 per cent of its assets under management, near prime, where customers are unable to get a loan from traditional banks, 39 per cent and specialist loans 13 per cent.
Credit Suisse analysts say that the business generates high margins and returns well ahead of its bank peers and in line with leading non-bank returns.
“Broadly, we see structural tailwinds for non-bank financial institutions, such as continued regulatory and reputational challenges for banks, as an ongoing relative advantage,” the Credit Suisse analysts said.
Working on the Pepper float are Credit Suisse, Goldman Sachs and RBC Capital Markets along with Reunion Capital.
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