Not much latitude seen in share float
Morningstar has urged investors against subscribing to big finance IPO
The impending float of Latitude Financial Services, one of Australia and New Zealand’s biggest consumer finance businesses and the company behind GEM Visa, has left independent research house Morningstar underwhelmed.
Latitude is seeking to raise A$1.24 billion to A$1.4b at A$2 to A$2.25 a share for what would be the year’s biggest listing on the ASX.
The company has a big commercial presence in New Zealand and a close commercial relationship with Kiwibank, through which it provides personal loans.
It last year bought Auckland-based fintech Genoapay, which provides a no interest payment instalment service.
Despite the strong Kiwi connection, Latitude will not list on the NZX.
The company, whose high profile ad campaign has been fronted by American actor Alec Baldwin, has more than 2.5 million customers in New Zealand and Australia.
Latitude kicked off its international roadshow in New Zealand last week and, based on indicative pricing, the stock is expected to have a market valuation of A$3.5b to $4b.
Morningstar analysts said in a report that Latitude had no economic “moat”, standard stewardship, and “very high fair value uncertainty ratings”.
Over priced?
“Our fair value estimate is A$2.00 per share, at the low end of the company’s indicative A$2.00−$2.25 per share pricing range,” it said.
Morningstar has urged investors against subscribing to the float, saying the business is highly leveraged, exposed to lower credit quality and the competitive threat of rival buy now, pay later players such as Afterpay.
Latitude has consumer-financing businesses, providing personal loans, credit cards, and no-interest financing products, including a buy now, pay later (BNPL) platform called LPay.
It has about 1900 merchant partners across Australia and New Zealand, and derives about 60 per cent of its business from big retailers such as JB HiFi, Harvey Norman and The Good Guys.
The business model centres on borrowing money cheaply in wholesale debt markets, then lending to consumers at a much higher rate.
The business was acquired from General Electric in 2015 and has come to market via private equity owners KKR, Varde Partners and Deutsche Bank.
Morningstar analyst Nathan Zaia said the offer risks being overvalued.
Zaia said that despite an attractive dividend yield of 4.5 to 5 per cent, “the long-term risk of recession and potential for capital losses should be considered”.
Or about right?
A spokesman for Latitude said there were limitations as to what the company could say at this stage of the IPO but he said demand from institutions and retail brokers had reached 70 per cent of the offer already, four days before it closes.
Macquarie, Goldman Sachs and UBS had confirmed that the valuation was “about right”.
Furthermore, LPay — which is built around New Zealand’s Genoapay BTW — had seen good take up, he said.
LPay already had about 10 major merchants and access to 5 million customers.
Kathmandu accolade
Kathmandu has earned a rare accolade from the New Zealand Shareholders Association after its recent capital raising to buy Australia’s Rip Curl.
“Kathmandu shows how to respect retail investors when needing to raise capital for acquisition,” the association said.
“Well done Kathmandu, not just for entering into an agreement to purchase 100 per cent of Rip Curl, but for also leading the way with respecting and including retail investors when capital raising is required in a short space of time.”
Retail investors account for the second largest group of investors on the NZX (24 per cent) and deserve the opportunity to participate in capital raising opportunities, the association said.
Kathmandu will issue an underwritten 1 for 4 pro-rata accelerated entitlement offer to raise $145m. “What this all means is that retail investors that already own their shares can take up the offer of new shares at 1 for every 4 owned,” it said.
Other listed companies would do well to follow Kathmandu’s example to makes sure they respect all shareholders.
“Unfortunately, some still do not when undertaking acquisitions.”
Sky TV slumps
Shares in Sky Network TV slumped after receiving notification from NZ Cricket that it has awarded a six-year broadcasting rights agreement to Spark Sport from April 2020.
Sky said it would continue to offer some of the best cricket the world has to offer, including exciting international fixtures involving the
Black Caps on tour.
Spark’s victory in the NZ Cricket bidding war comes after Sky’s announcement that it had signed a six-year deal for the Australian cricket rights, which includes the Black Caps tours in 2019/20 and 2020/21, along with all Men’s and Women’s International matches that will be played in Australia and BCCI (India).
The pay TV network’s shares last traded at 88c, down 23c, or 20.7 per
cent, from Wednesday’s close.