Latitude IPO demands premium

The financial services company wants a premium for a lot of promises

The IPO of Latitude Financial group will be by far the largest float of the year as the non-bank lending and payments company seeks to raise up to $1.3bn for a $3.6bn valuation.

Latitude on Friday priced at $2 a share, at the bottom end of its IPO range.

The timing seems perfect as interest rates hover at historic lows amid rising economic concerns and as so-called “buy now, pay later” companies — including Afterpay, Zip Co and EML Payments — have delivered strong shareholder returns. But is it fair to compare Latitude to Afterpay given Latitude generates income from loans and credit cards?

Latitude Financial

• ASX Code: LFS
• Shares: 622.4 million
• Listing Price: $2
• Market Cap: Up to $3.6bn
• Listing Date: October 18

Following the appointment of high-profile former Australia Post CEO Ahmed Fahour, Latitude revised its model in January 2019 to steer into the digital payments industry.

While the prospectus paints a quirky picture of a disruptive digital payments company as of today Latitude Financial is primarily a consumer finance business, based on the former GE Money operation, which has ambitious growth plans.

Those plans mark the second attempt at listing in the last year for Latitude. The deal was initially priced at up to $4bn as the high-profile line-up of brokers — including Macquarie Capital, Goldman Sachs and UBS — were betting on enough demand to list at this value.

Latitude Financial has a network of nearly 2000 partners across 9000 outlets including merchants such as Harvey Norman, JB Hi-Fi and Apple. The company forecasts operating income of $1.06bn and cash net profit after tax of $287.6m for the financial year June 2020.

CEO Fahour is set to become one of the highest paid executives in this country and eyes a discretionary equity grant upon listing which “may not exceed $22.5m”.

If the legislative environment remains favourable the company appears positioned to deliver customer and income growth however any less than favourable conditions could result in substantial headwinds. The company is to be floated on a multiple of at least 12 times earnings with an expected dividend yield close to 5 per cent. The IPO would be significantly more attractive at a lower multiple but, new investors will pay the premium.

It will be interesting to see if the party continues or if this IPO marks the sector’s peak.

Simon Herrmann is an investment analyst at
wise-owl.com