Latitude’s Fahour says ‘revenge spend’ to drive post-lockdown bounce

Latitude Group chief executive Ahmed Fahour has underlined the lender’s confidence there will be a strong rebound in consumer spending from the current lockdown-induced slump, as he backed the government’s road map for re-opening the economy.

In its first result since listing in April, Latitude on Monday delivered an 81 per cent rise in cash profits, to $121 million, after its lending growth was fuelled by spending on “home economy” purchases such as whitegoods, furniture and electronics.

Latitude Group chief executive Ahmed Fahour.Credit: Arsineh Houspian

Mr Fahour said the current lockdowns had slowed activity, but pointed to the company’s rebound from Victoria’s prolonged lockdown last year, when pent-up demand caused volumes in the state to surge 43 per cent as restrictions were eased November.

He said the board was confident enough to give guidance that it expected Latitude would match the interim dividend of 7.85c a share when it determines its final dividend, in six months time.

“We feel pretty confident as a board, as a matter of fact, we said barring any unforeseen economic calamity... we feel confident enough to say that in the second half we intend to pay a dividend as good as the good one in the first half,” Mr Fahour said in an interview.

“So that gives you a pretty good sense of where we think our business is at, and how confident we feel, especially later this year and early next year in terms of that revenge spend.”

Mr Fahour said elimination of COVID-19 was not realistic in the short or medium term, and he backed the government’s plan for re-opening the economy once vaccination thresholds were met.

Latitude shares, which were offered to investors at $2.60 in this year’s float, closed 3 per cent stronger at $2.40.

Portfolio manger at Tribeca Investment Partners, Jun Bei Liu, said it was fair to assume Latitude would have a strong rebound from lockdown, but the company would be affected more than other digital lenders by the current restrictions on retail trading. Ms Liu said the stock was not expensive, but she predicted the lockdowns would lead to earnings downgrades next year.

“The challenge is that continued lockdowns will affect this business,” Ms Liu said.

Meanwhile, Macquarie analysts said the earnings result was slightly ahead of their expectations, and despite the risk from lockdowns they saw value in the stock.

Latitude’s lending volumes were up 5 per cent compared with the first half of last year, while its net charge-offs declined by 41.7 per cent to $58.3 million, benefiting the bottom line.

Despite weakness in the pandemic-affected travel category, the result showed expansion in market share, with Latitude becoming the second largest personal lender in the country.

As Latitude prepares to expand its range of buy now, pay later (BNPL) products to cover purchases of a couple of thousand dollars, Mr Fahour said the BNPL market for smaller purchases was saturated and predicted many players would not be profitable. “The reality is that there’s a lot of buy now pay later players that will never make a profit,” he said.

The company will pay an unfranked dividend of 7.85c a share on October 14. It expects the final dividend next year will be at the same level, but fully franked.

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