Pepper Money will look to raise half a billion dollars in the biggest IPO of 2021

Following a boost this week Pepper Money’s IPO is now pegged at half a billion dollars, but the lender says there’s plenty of room to grow.

Home lending is just part of the Pepper Money portfolio.

Pepper Money will raise half a billion dollars in the biggest initial public offer of the year to date, with chief executive Mario ­Rehayem saying the company is still “at the start of a very long freeway’’.

The workforce shift to a “gig economy” and employees with characteristics that did not necessarily fit the lending criteria of the traditional banks would only benefit Pepper, Mr Rehayem said, adding that the company was constantly scouring the market for new market segments it could play in.

Pepper’s ambitions do not include any “buy now, pay later” ­aspirations, but recent expansions into areas such as novated leasing and commercial real ­estate lending, and the fact that Pepper still only accounted for half a per cent of the $2.16 trillion Australian and New Zealand mortgage market meant there was plenty of headroom to grow.

Pepper, a non-bank lender that launched in 2000 and expanded into the “near-prime” and prime home loan mortgage markets in 2012 and 2014 respectively, entered the commercial real estate market recently and the New Zealand lending market in the back half of 2019.

Mr Rehayem said the company had a strong technology base with tools that made it easy for distribution partners to assess the best loan solutions for customers, but Pepper had many strings to its bow. “We never like to hinge our success on one area of the business, it has to do with a number of things,” Mr Rehayem said.

“The business has 20-plus years of rich data and that data has been used to our advantage, we’ve been mining it for many years.

“Couple that with our ability to then innovate products and distribute those products across a distribution network that we’ve established over those 20 years.

“One of our advantages is our ability to turn data into a digitally enhanced tech stack that’s been able to really support brokers in removing the friction between understanding a customer’s profile and marrying that up with a product in under two minutes.’’

Mr Rehayem said there was constant change in consumer demographics and the way they earned money, and lenders needed to be flexible and continually innovate.

He said banks had a “very narrow profile’’ for the customers they served, “which then leaves an abundance of under-served segments of the market that we have been focusing on for 20 years’’.

“Although we’re one of the largest non-banks in the country, we’re driving on a very, very long freeway, if that makes sense,” he said. “We have plenty of room to cover, but we are extremely disciplined and prudent in how we will grow.

“We will keep on identifying those under-served segments and just keep on introducing new products onto that distribution network that we have, and keep growing over time organically.’’

Pepper this week increased the size of its initial share offer by $50m after strong institutional interest, and Mr Rehayem said the offer had been “very well ­received’’.

The IPO is priced at $2.89 a share, with Pepper saying in its prospectus it will aim to pay out 30-40 per cent of net profits in dividends.

The company will be valued at $1.3bn based on the issue price when it lists on May 25.

Pepper made a net profit of $32.2m in the 2018 calendar year, rising to $106.3m in 2020.

The funds raised in the IPO will be used for the partial repayment of an existing bridge facility and shareholder loan.

Mr Rehayem will take home a fixed salary of $1.03m a year and will be able to earn a further 70 per cent through the short-term incentive plan.

Pepper is backed by private equity firm KKR, which will retain a 60.6 per cent shareholding on listing.