Hard sell starts for Latitude IPO

Gerry Harvey and Ahmed Fahour at the launch of LatitudePay. Picture: John Feder

Latitude Financial is understood to have attracted enough demand to list as a business with a market value close to $4bn, but exactly where the price of this year’s largest initial public offering lands is yet to be concluded.

The company is not expected to lock in a cornerstone investor as it proceeds with a float in late October or November, despite what may be a large selldown by owners Kohlberg Kravis Roberts, Varde Partners and Deutsche Bank.

As the IPO campaign ramps up in the coming weeks, fund managers will start weighing the pros and cons of investing in Australia and New Zealand’s largest non-bank payments and consumer finance business.

Investors are expected to learn that Latitude has variable interest rates, which will guard against shifts in rates over the coming years, and a net interest margin of 10 per cent.

However, one question that could be on fund managers’ minds is what the impact will be on the markets if the top four banks withdraw from the consumer finance market in the long term, in a move that could pose both threats and opportunities for Latitude.

The company secures most of its funding from offshore, but also some from Australian banks.

Another point of focus may be global competition, potentially from e-commerce giants such as Amazon or Alibaba.

The future for Latitude, which serves more than 2.6 million customers, is to become a global non-bank lender in the long term as a growing number of transactions happen online and offshore.

Analyst research for Latitude started hitting the desks of fund managers last week, and as first reported by DataRoom online on Friday, Macquarie Capital expects the business to be worth somewhere between $2.59bn and just over $4bn.

This is based on expectations of annual net profit being between $236m and $288m and that the company will be valued at between 11 and 14 times its net profit.

Goldman Sachs said it expected annual net profit to hit $288m, based on a growth rate on the previous corresponding period of 7 per cent, saying global comparative companies trade at between 9 and 15 times net profit.

Up for discussion is whether the company is priced in line with a small bank or a financial technology company such as the popular “buy now, pay later” provider Afterpay.

Latitude comprises the assets of the former Australian GE Capital consumer business and was acquired by a consortium in 2015 for $8.2bn, including debt.

Run by Ahmed Fahour, the business offers consumer finance through a variety of services, including personal loans, credit cards, car loans, personal insurance and interest free retail finance and is the second largest non-major bank player in the non-housing personal lending market.

Goldman Sachs, Macquarie and UBS are working on the IPO, with UBS analysts holding similar views on valuation to Macquarie and Goldman’s.

The Australian exclusively revealed on Thursday that the company was on track to price at about 13 times earnings, with research supporting the valuation due to be released any day following meetings between fund managers and Fahour.

The float of the non-bank lender comes after the promotion this month of its new buy now pay later system, which will take on Afterpay.

LatitudePay has been adopted by retail powerhouse Harvey Norman, and the retailer will offer the interest free service for purchases under $1000 as its sole buy now, pay later platform.