Latitude’s tasty yield can drag investors out of the doldrums

Latitude is offering a yield close to 5 per cent.

The bullish pricing of the Ahmed Fahour-led Latitude Financial can be attributed to the desperate demand from retail investors for strong yields amid a low interest-rate environment.

Retail investors are expected to be ascribed a large portion of the shares in Latitude, which has priced its business at a market value of between $3.6bn and $4bn, as first revealed by DataRoom on Thursday.

Large IPOs have been scarce this year and those coming to market with a strong yield are being swallowed, as witnessed with the upcoming float of large format retail landlord Home Consortium which raised $300 million from mostly retail investors, with a 6 per cent yield.

Latitude is offering a yield close to 5 per cent, and earnings growth is likely to be fuelled by the anticipated move by banks to shy away from various aspects of consumer lending and a strategy to capitalise on growing opportunities in payments and further global expansion.

While the company is on track to list at between 12.4 and 13.9 times net profit, some institutional investors are less bullish and believe it only remains a good investment at about 11 times.

However, it will be retail investors who get the float across the line. On Thursday, Latitude was telling investors it had received interest for its IPO offering at various price points within its pricing range of $2-$2.25 a share.

The indications were understood to have come from a small group of institutions that met with the company’s management before the IPO launch.

The interest equated to about a third of the offer size at the bottom of the price range, Latitude told fund managers.

Latitude will list on October 18 after a bookbuild on October 15 and 16, as it seeks to raise between $1.24bn and $1.4bn by selling 622.4 million shares.

The business has 2.6 million customer accounts and more than 1950 merchant partners.

It generates funds from its personal loans business L Money and Hallmark insurance operation and L Pay, where Latitude provides a payment and finance solution for merchants and customers to transact.

Latitude owners KKR, Varde Partners and Deutsche Bank will continue to own about 54 per cent of the company, with the stake escrowed until the release of its annual results next year.

KKR and Varde both own 35 per cent and will retain 20.5 per cent, while it is no surprise that Deutsche Bank, which owns 30 per cent, is selling down the most, retaining 12.9 per cent, following a string of losses in recent years globally.

Latitude is forecasting cash net profit of $287.6m for the 2020 financial year after hitting $278m for fiscal 2019.

Its pro-forma net profit is expected to be $178m, up from $164m for fiscal 2019.

Earnings before interest, tax, depreciation and amortisation of $434.2m are also expected for the year ending June 30, 2020.

Working on the float are Macquarie Capital, Goldman Sachs and UBS, while the co-lead managers include Ord Minnett, Crestone, Wilsons and Morgans.

Latitude is made up of the assets of the former local GE Capital consumer business, which was acquired by a consortium in 2015 for $8.2bn, including debt.

The business offers consumer finance through services such as personal loans, credit cards, car loans, personal insurance and interest-free retail finance.

It is the second-largest non-major bank player in the non-housing personal lending market.