Pepper’s Banco Popular deal no precursor; Italian links loom

Pepper Group has lifted profit, while revealing it is close to securing a long-desired beachhead in Italy.

Pepper Group's Mike Culhane hosed down speculation about a Spanish takeover.

Pepper Group has revealed it is close to securing a long-desired beachhead in Italy, as the non-bank lender shot down suspicions a recent deal with Spain’s Banco Popular would eventually lead to a full takeover.

Reporting a 41 per cent jump in first-half adjusted profit to $23.6 million, Pepper co-chief Mike Culhane said the 50-50 joint venture with Banco to grow in the Spanish unsecured consumer ­finance market was a strategic play and had no takeover agenda.

As part of the deal unveiled last month, Banco bought a 5 per cent stake in Pepper and agreed to provide a $100m funding facility that the latter can choose to draw down on, in exchange for the sale of a further 14.9 per cent.

Pepper’s shares rose 8 per cent after the deal, before easing 1.85 per cent to close on Thursday at $2.65.

Mr Culhane said that, despite the deal resulting in speculation Banco could be a suitor, there had been “absolutely zero conversations” with the Spaniards about that and “we view this as a strategic relationship in consumer ­finance and nothing more than that”.

He added Pepper was working with Banco on other deals across Europe and Latin America, with opportunities “already starting to come across our desk”.

Pepper was also about to enter Italy through a debt-servicing ­operation or lending business. “We’ve moved from having general conversations with potential businesses we want to invest in to much more detailed conversations around term sheets and documentation,” he said.

“So we are hopeful we’ll be able to announce one or even two transactions in Italy by the end of this calendar year.

“We’re very focused on trying to set up or buy into a third party servicing business there because the Italian banks are going through a whole lot of pain right now and the result of that could be some very interesting opportunities for us.”

Pepper writes mortgages and personal loans, but also services loans for third parties, including banks which outsource the collecting of payments and dealing with stressed borrowers. In the six months to June 30, total assets under management grew 44 per cent on last year’s corresponding period to $53 billion, with servicing making up the bulk. Total income grew 46 per cent to $194m from higher lending in Australia and South Korea. Net profit grew more than six times to $24.4m.

With record mortgage originations in Australia in the past two months, Pepper flagged that full-year adjusted profit would rise to at least $59m. After 90-plus day mortgage arrears fell to 1.36 per cent, co-chief Patrick Tuttle said he did not expect any “material move” higher and property prices had stabilised in the mid-market metropolitan areas Pepper lent in.