Don’t sell to Latitude for this price: Humm former chair Andrew Abercrombie writes to shareholders

Allan Gray’s Simon Mawhinney says there is no value in the buy now pay later sector, as Humm shareholder Andrew Abercrombie fights to stop the group’s sale.

Former chair and top Humm shareholder, Andrew Abercrombie, has written to shareholders urging them not to sell the group’s BNPL business to Latitude. Picture: Tracey Nearmy/AAP Image

As the ugly battle over whether Humm should sell its buy now, pay later business to Latitude becomes more ugly each day, is it a case of arguing over last year’s mouldy apples?

Allan Gray chief investment officer Simon Mawhinney is one who believes there is no value at all in the BNPL sector, particularly as interest rates rise from historic lows.

“It may be that most if not all of them will ultimately prove to be worthless,” Mr Mawhinney said. “For the most part they are unsecured lenders and they haven’t lived through a credit or retail cycle to which they are heavily exposed.”

That is not the view of Humm’s former chairman and 20 per cent shareholder Andrew Abercrombie, who has today written to 12,000 of the company’s shareholders and implored them to either hold out for a higher price or stick with the company’s strategy.

“Vote against the sale,” Mr Abercrombie wrote. “The deal in its current form, is seriously flawed. Humm is 1 of only 2 profitable Buy Now Pay Later players in Australia. It is in a strong position, with substantial cash reserves, access to funding, and a positive outlook.”

Latitude has offered $320m for the consumer finance division of Humm, which Mr Abercrombie sees as a dramatic discount to its real value, but the majority directors and an independent expert believe is fair.

Latitude announced its takeover offer of 150m Latitude shares and $35m in cash in January against a challenging backdrop for other players in fintech and personal lending.

Mr Abercrombie says that the fall in Latitude shares since the announcement means the deal value has dropped to about $300m and doesn’t offer enough of a premium.

“HCF is going well. It is growing as we emerge from Covid and I believe any headwinds are equally present and blowing harder for Latitude,” Mr Abercrombie said in the letter. “There is no NEED to sell. So why sell such a successful company with huge potential at such a terrible price?”

The founder and 20 per cent shareholder, who remains on the board of Humm, may be standing alone in his conviction about the BNPL sector.

The once-hot BNPL industry has suffered a fall from shareholder grace in recent years. Shares in rival firms have fallen as much as 75 per cent in recent times and at a recent Allan Gray conference, the value investor specifically flagged this industry as having zero value.

In an extraordinary move, the Humm majority board on Monday warned its BNPL unit had been unprofitable on an unaudited basis in the four months to April 30 after accounting adjustments, and urging shareholders to accept the offer.

Mr Abercrombie responded by saying it was “insincere” for the majority board to “cherry pick one particular item,” adding that volume growth had risen 20 per cent and profitability had declined because of a planned increase in expenses relating to the company’s UK roll out.

Humm shareholders will vote on the sale on June 23.

“Vote AGAINST the sale, unless we get a better deal,” Mr Abercrombie wrote in the letter to shareholders. “If we cannot get a better deal, vote AGAINST and Humm will keep HCF, which as stated in the EB, has a viable future and I believe will yield a better outcome in the longer term.”

The activist director and founder has also created a purpose-built website to argue his “no” campaign, ahead of the shareholder vote on June 23.