Loan originations are on the rise at two new, tech-driven personal lending brands, Harmoney and MoneyMe, which presented plans to beat the major banks at finding customers and assessing their risk but failed to convince the market.
Harmoney and MoneyMe have both developed machine learning tools using broad data sets to assess customers; Harmoney said a new model using data from 53,000 Australian loan applicants had resulted in its ‘Libra’ system doubling originations in the middle two weeks of February.
Over the half, Harmoney’s $194 million of new loans was down 28 per cent, adding to the negative sentiment on the market. But it explained this was due to a COVID-induced pullback in the first quarter and said new loans were up 47 per cent in the second quarter and momentum is continuing. It’s total loan book is $470 million including New Zealand, where it started lending in 2014 before adding Australia in 2017.
MoneyMe said its new originations of $114 million were up 21 per cent over the half, for a gross loan balance of $167 million.
Of its receivables, around half are personal loans with the rest a digital credit card book, branded Freestyle (it charges interest but also sets up a fixed repayment plan); and MoneyMe+, a merchant-funded buy now pay later product just launched.
Harmoney, whose average loan size of $25,000, reported an interim net loss of $2.8 million. Its market capitalisation is $220 million. Its shares have disappointed since its float in November last year and were down 10 per cent to $2.06 on Wednesday.
MoneyMe, with an average loan size of $8,000, reported a $4.3 million net profit, and has a market cap of $273 million. It’s stock closed down 1 per cent at $1.58 after a late recovery from a post-lunchtime sell-off.
Both companies have expanded their warehouse funding facilities from major banks and say they have sufficient capacity to fund their growth. Harmoney CEO David Stevens said it is targeting $1 billion in annual loan originations, with a direct-to-customer, digital model that is highly automated: two-thirds of applications are not touched by humans.
MoneyMe CEO Clayton Howes said technology is helping to create a scalable model that allows new products to be added without changing the credit model. “We are creating a suite of products under one ecosystem and we think the buy now, pay later experience can work for higher value purchases.”
Both companies are chasing a $150 billion consumer lending market in Australia that has seen a massive structural shift with major bank share declining from 90 per cent in 2015 to 50 per cent in 2018. Other players are newly-listed Plenti, SocietyOne, which is planning an ASX listing, and the soon-to-be merged BOQ and ME Bank which operates the Virgin Money brand. Major banks are scrambling: National Australia Bank is buying 86 400 while Street Talk reported on Wednesday that banks are kicking the tyres on MoneyMe.
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Bega Cheese, which quickened plans to become a branded dairy manufacturer with the $534 million purchase of Lion Dairy & Drinks this year, is emerging from drought and pandemic volatility.
“This result beat the market’s estimates because it is coming out of the cycle in better shape than it went in,” Ethical Partners investment director Nathan Parkin said.
Mr Parkin, whose fund owns 6.7 per cent of the $1.9 billion company, added that Bega - which owns brands including Vegemite, Kraft and Dairy Farmers, Yoplait, Big M, Masters and Farmers Union - had done “a good job” of keeping milk supply in a tough environment, and said management had done a good job of cutting costs and sharing capacity.
Bega shares rose more than 8 per cent after the group reported a 4.5 per cent fall in first half revenue to $707 million - hurt by a rising Australian dollar, ending low-value manufacturing contracts and weaker milk volumes.
Net profit for the half was $21.7 million, a 154 per cent increase, boosted by a more profitable sales mix as the company works towards its 2023 target of having 70 per cent of its sales from branded products. The first half is traditionally the strongest for Bega, partly because of the seasonal increase in milk production.
Bega’s executive chairman Barry Irvin said the company was “pedalling hard” to deliver on acquisition synergies. The company swooped in and bought the Lion dairy and drinks business after federal Treasurer Josh Frydenberg rejected in August a proposed $600 million acquisition of the business by Chinese company China Mengniu Dairy.
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WiseTech Global is priced like a growth stock, on a price-to-earnings ratio of 97 times. It invests like a growth stock, ploughing $83 million into R&D during the December half - almost double its underlying net profit for the period of $43.6 million.
And it talks like a growth stock, persisting in referring to chief executive-founder Richard White as the “chief operating decision maker” in its accounts.
But in terms of actual growth, WiseTech’s approach is changing. Yes, EBITDA jumped 43 per cent during the period to $89.2 million and underlying profit rose 61 per cent. But $6 million of cost cuts (including sharply lower sales and marketing expenses) helped there.
Further, total revenue growth of 16 per cent (19 per cent on WiseTech’s flagship CargoWise platform) was well behind the 31 per cent growth of a year earlier, and well down on the 68 per cent growth in the December half of 2019.
There are two mitigating factors. COVID-19 is a big one, although global demand for shipping has bounced back to unprecedented levels amid what White called a “goods-led” recovery.
But the biggest factor is White’s decision to slow down on acquisitions after 39 deals since listing in 2016.
White’s argument that WiseTech now has its platform and resources in place is fair enough. It’s not that long since he was being accused of buying growth.
But we’re seeing that slowing down the deals means lower sales growth and that arguably changes WiseTech’s profile from that of market consolidator to that of a tech-driven competitor.
Nothing wrong with that, of course – it’s still winning clients, enjoying nice growth from existing customers, and delivering impressive margins. The question for investors is whether that’s enough for a stock trading at 97 times earnings.
The December-half results for Humm, Australia’s third force in the buy now, pay later space, continue to show it’s a different kettle of fish.
First, there’s a strong cash profit – highly unusual for the sector – which rose 25.8 per cent for the period to $43.4 million, thanks a mix of revenue growth, cost control and the partial release of COVID-19 provisions.
Then, there’s an extension of a product set that already offers maximum flexibility to customers, covering purchases up to $30,000.
Chief executive Rebecca James has now added HummPro for SMEs in a bid to displace the credit cards, overdrafts and line of credit many rely on, and help retailers stop using their own balance sheets to provide SME customers with terms of trade.
Finally, there’s Humm’s international expansion route. Having been the only player in the Irish market – where it has long had operations thanks to its previous relationship with Harvey Norman, which also has an Irish arm – James announced on Wednesday she will push across the border into Britain, and already has 200 retailers on board.
Of course, Humm’s other point of difference is the direction its share price has headed in the last year. Where Afterpay is up 275 per cent and Zip up 235 per cent, Humm’s shares are down 25 per cent.
The stock slumped 17 per cent on Wednesday. A 7.2 per cent fall in transaction volumes may have spooked the market – although this was due to a drop in use of Humm’s legacy credit cards – and the decision to drop an interim dividend definitely didn’t help.
James also warned profit in the second half of the year would be lower than the first as Humm chases international growth.
James has transformed Humm, formerly Flexigroup, in just two years. She appears to be getting her message through to consumers (active customers rose 40.4 per cent to 2.6 million in the December half) and running a tight ship (operating costs fell 11 per cent).
But investors, used to astronomical growth rates in buy now, pay later, are tuning out. Perhaps international growth could get them listening again, but it won’t be easy.
On one of the frontlines of Australia’s pandemic response – or perhaps the border is more accurate – Sydney Airport chief executive Geoff Culbert is controlling what he can control.
While the group’s $107.5 million loss for calendar 2020 was hardly surprising in the face of plunging passenger numbers, the 32.3 per cent reduction in operating costs that Culbert was able to deliver softened the blow.
Liquidity sits at $3.5 billion, giving Culbert room to respond to the wide range of recovery scenarios that could play out.
Not surprisingly, the company is keen for more certainty around those scenarios, with Culbert mounting a strong argument that as part of the “grand bargain” of Australians getting vaccinated, they should be able to know when and how travel restrictions will be wound back.
He says this is about more than people planning holidays or work trips. Australia’s success in handling the virus means it will be seen as one of the safest places in the world to study, visit and work; loosening restrictions in a prompt way, in line with the vaccine rollout and potentially using tools such as vaccine passports, can help Australia turbo-charge its recovery.
“This is the grand bargain – you get the vaccine, you get your life back,” Culbert says.
Getting agreement between the federal and state governments has been the issue, of course.
Culbert says NSW has shown its desire to lead the way, but what we can’t have is the tail wagging the dog – that is, one holdout state stopping Australia from reopening later this year.
The contrast couldn’t have been starker.
A week ago, Coles Group chief executive Steven Cain went out of his way to make it clear reality was about to bite the supermarket sector – not only would the fading COVID-19 sales surge likely see sales fall for the rest of the year, concerns about stalled immigration would also weigh on the sector over the longer term.
But on Wednesday, Woolworths chief executive Brad Banducci seemed determined to present a very different view of the world as he announced a 15.9 per cent increase in net profit for the 27 weeks ended January 3 to $1.1 billion, just ahead of analyst expectations.
Yes, sales will moderate and probably fall over the March and June quarters. But this moderation has been happening since August in a surprisingly gradual and uniform way around the country.
And there are still reasons to be upbeat. COVID-19 costs will fade as sales growth does, protecting profitability. Keeping stock on the shelves was tough last year but stock levels are now much better.
And lockdowns meant Australia didn’t have a proper Easter last year, effectively ruining the supermarket sector’s second-biggest sales event of the year. This year, Easter coincides with school holidays, potentially giving supermarkets extra momentum.
Banducci’s optimism compared with Cain may have had something to do with his trading numbers for January and February compared with his great rival.
Where Coles said same-store sales growth was running at 3.3 per cent, Woolworths supermarkets had comparable growth of about 7 per cent. That’s broadly in line with market growth, suggesting Woolies is holding share while Coles might be leaking some.
But Banducci isn’t getting too carried away with the strong start to the year, pointing out the same period in 2020 had subdued sales because of bushfires around the country.
Indeed, he says comparisons between this year and last year right across the group are “messy” because of the extraordinary events of the last 12 months, and argues that having misjudged how quickly COVID-19 would pass in the early days, he’s taking a longer view.
“I think in an emotional sense, if not in a virus sense, we’re probably only halfway through the virus,” he says. “When you look back on these sorts of crises they are usually a 24-month event.”
In any event, percentage changes don’t pay the bills. “We’ve got a saying at Woolworths: You bank dollars and not percentages.”
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Woolworths’ underlying net profit surged 15.9 per cent to $1.14 billion in the December half as stay-at-home consumers spent more on food and groceries, liquor, homewares and toys, offsetting $277 million in COVID-19-related costs.
Chief executive Brad Banducci said sales were expected to fall in the June quarter as Woolworths lapped the strong sales growth achieved during pantry stuffing and panic hoarding at the start of the pandemic. However, COVID-19 costs were expected to fall, mitigating the impact on earnings.
“Looking ahead to the rest of the financial year, we expect sales to decline over the March-to-June period compared to the prior year in all our businesses, with the exception of hotels where venues were closed for much of the final four months last year, as we cycle last year’s COVID surge,” Mr Banducci said.
“However, in parallel, we also expect COVID-related costs to be materially below the prior year, subject to no further widespread prolonged lockdowns.”
The December-half net profit result, excluding one-off items in the year-ago period, was slightly ahead of consensus forecasts around $1.1 billion.
Earnings before interest and tax across the group rose 10.5 per cent to $2.09 billion, beating consensus of $1.99 billion, as double-digit profit growth in supermarkets, BIG W and Endeavour Drinks offset a 45 per cent drop in earnings from hotels, which were hard hit by trading restrictions.
Group sales rose 10.6 per cent in the six months ended January 3 to $35.84 billion, falling just short of consensus of $35.9 billion.
Woolworths’ online sales grew faster than Coles’, rising 78 per cent across the group to $2.9 billion or 8.2 per cent. Online sales rose 92 per cent in food and 44 per cent in liquor.
Mr Banducci said group sales for the first seven weeks of the June-half had remained strong, benefiting from continued at-home consumption, Australians not travelling abroad, and a weaker prior year where sales were impacted by bushfires.
“In general we’re seeing relatively consistent elevated demand right across Australia right now,” Mr Banducci said, adding that toilet paper sales were still above normal as people spent more time at home.
Woolworths’ supermarkets outperformed Coles in the June-half to date, with total sales rising 8 per cent and same-store sales by about 7 per cent in January and February, compared with Coles’ same-store food sales of 3.3 per cent.
Woolworths’ food sales growth in the December quarter and in January and February was more in line with market growth (around 8.8 per cent) suggesting that Woolworths is maintaining market share while Coles is losing share to independents such as Metcash’s IGA retailers.
Mr Banducci said Woolworths’ priority in the June-half would be accelerating its digital capabilities as digital engagement and e-commerce became an increasingly important part of the shopping journey for customers.
“I don’t think it will be long before digital visits exceed physical visits across all our stores,” he said.
“We have added significant e-commerce capacity across the group over the last year which puts us in a strong position to meet our customers’ demands.
“As growth rates in the second half slow as we cycle peak COVID-demand, we have an opportunity to optimise e-commerce at scale and deliver further efficiency.”
Mr Banducci said the $10 billion spin-off of Endeavour Drinks, which was postponed last year due to the pandemic, was now expected by June, most likely by a demerger. Woolworths expected to incur separation costs of $45 million to $50 million in the June-half, taking the total cost to about $275 million.
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Here, There & Everywhere chief executive Ciaran Davis says despite a dramatic three-week period of advertising cancellations at the start of COVID, broadcast radio and digital audio listenership has grown year on year as audiences flock to media’s most intimate medium.
HT&E said on Wednesday that its full-year revenue fell 22 per cent to $197.3 million, mostly because of a drop-off in the local advertising marketing in the first half of the year.
Relative strength in government, banking, finance, online education and ecommerce advertisers helped rein in further ad revenue losses in the back half of the year.
HT&E reduced its costs by 16.2 per cent, or $30.3 million, as the company made a number of redundancies, made remaining staff and executives taking a five-month 20 per cent pay cut, and implented cutbacks on travel, entertainment, and its own marketing spend.
The company’s net loss widened to $42.5 million from the year-earlier $14.2 million shortfall. Despite a dent in revenue, the company’s net cash position remains strong, at around $112 million.
HT&E, which counts KIIS, The Edge, and Pure Gold among its radio network, kept all its on air hosts in studio throughout the year, as many other staff worked from home.
“It meant that our content was still as live and as upbeat as it could be. We made a conscious effort that the content we put out was upbeat - informing the community as we should do, but hopefully in a much more entertaining way that kept them engaged ... we tried to keep people’s routine in radio the same,” Mr Davis said.
Consistent with other media consumption trends across social media, digital news, and streaming, broadcast radio listening was up 2 per cent for the year, while ARN (Australian Radio Network) digital streaming was up 14 per cent.
“Soprano continues to perform incredibly well, there is a big demand for CPaaS (Communications Platform as a Service) capability,” Mr Davis said.
“We’ve been a long-term shareholder in there, we’re very happy with the relationship, but just as we spend a lot of time as a board and management thinking through HT&E’s future, Soprano is non core to our business ... we just think the time is right to see what options are there for us to find some liquidity event for ourselves.”
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IOOF chief executive Renato Mota says profit extracted from subsidiaries formerly owned by ANZ is a blueprint for his high stakes takeover of National Australia Bank’s MLC, as the wealth manager threw a 3¢ special dividend as a sweetener to sceptical shareholders.
ANZ’s former pensions and investments (P&I) business contributed $46.1 million of the IOOF group’s underlying first-half profit of $65.9 million or almost 70 per cent. It accounted for more than one third (35 per cent) of the wealth giant’s gross margin figure of $349 million.
The subsidiary includes the big four bank’s former superannuation funds, which manage a collective $68.3 billion in retirement savings, and officially became part of IOOF in January last year after a three-year acquisition process.
Mr Mota pointed to $5.9 million in “synergies” from the ANZ acquisition realised in the half, which he forecast would snowball to $43 million per annum by June of this year.
“There’s no doubt P&I is making a meaningful contribution to IOOF and that was always the rationale,” he told The Australian Financial Review.
“We’re already talking about how we are going to simplify the ANZ ecosystem, within 12 months of ownership. We are delivering outcomes in a reasonably swift manner. That all bodes well for MLC.”
The comments come as IOOF awaits final regulatory approval of its $1.4 billion acquisition of MLC Wealth, which would make it Australia’s largest provider of financial advice and a top five superannuation provider.
Both the ACCC and NAB-owned superannuation trustee, Nulis Nominees, have given their approval for the acquisition to go ahead, but IOOF is yet to receive a green tick from the prudential regulator, APRA, which unsuccessfully sued the wealth manager after the Hayne royal commission.
If it proceeds, IOOF intends to embark on a major simplification project, slashing the total number of products across the merged entity by 52 and operating just four managed funds and five wealth platforms by 2022.
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Increasing regulatory scrutiny on the big tech giants worldwide has compounded a reduction in advertising-related artificial intelligence program spend from companies like Facebook, Microsoft and Google, creating a period of great uncertainty for Appen.
The artificial intelligence data services company, which services the world’s largest tech companies, took a share price hit of more than 7 per cent on Wednesday, after its full-year results disappointed investors and its outlook for 2021 missed analyst expectations.
Appen chief executive Mark Brayan said part of the work the company was doing was to help the tech giants grapple with the public distrust and regulatory pressures, including annotating data to train algorithms to combat misinformation.
The company missed analyst consensus estimates across the board in its full-year results, recording a 12 per cent jump in revenue to $599.9 million, compared to consensus estimates of $623.5 million in revenue.
Appen’s statutory net profit of $50.5 million, up 21 per cent on a year ago, also fell below expectations.
On an underlying basis, which excludes after tax items related to acquisitions, share-based payment expenses and transaction costs, its profit fell 1 per cent to $64.4 million.
Despite this, Mr Brayan said 2020 had been a breakout year for new sales and projects, although he admitted the year “wasn’t without its challenges”.
“The company’s B2B (business-to-business) selling was impacted by the pandemic-driven shift to working from home, resulting in fewer customer wins in Q2 and Q3, before bouncing back in Q4,” the company wrote in a release to the ASX.
“The pandemic also reduced online advertising mid-2020, impacting Appen’s major customers and resulting in less spending on advertising-related AI programs as resources were re-prioritised to new products and some projects were deferred.
“Appen is involved in many of these new projects, which are in their early stages and growing, and they will complement our major programs. The majority of deferred projects are recommencing in 2021.”
Appen provides the world’s largest tech companies with human-annotated data to train AI algorithms used in everything from search engines to voice assistants and image recognition technology,
The biggest constraint on the company’s growth was its speech and image business, which posted a 10 per cent fall in revenue to $61.2 million. In contrast, the revenue of its larger content relevance business grew 15 per cent to $538.2 million.
The results follow a substantial earnings downgrade issued in December, in which Appen adjusted its full-year 2020 outlook to underlying EBITDA of between $106 million and $109 million, from between $125 million and $130 million previously. The company ended the year with an underlying EBITDA of $108.6 million.
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Humm Group confirmed it will expand into Canada and the United Kingdom, a move that will depress second-half profit as it invests to chase growth as buy now, pay later takes off globally. Its shares plunged 16 per cent on the news.
Humm, formerly Flexigroup, said its first-half cash profit rose 26 per cent to $43.4 million from the year-earlier period, driven higher by its credit card and SME financing businesses.
Profit from the buy now, pay later segment which it is shifting towards fell 39 per cent to $3.1 million for the half as it invested in new products, including one for small business called ‘humm pro’ that was launched last week. But it still remains the only profitable buy now, pay later provider.
Shares plunged 15.9 per cent to $1.10 by mid-afternoon Wednesday, as investors fretted over higher costs of chasing Afterpay, Zip and Klarna abroad. Some pressure was also due to the omission of an interim dividend; it paid an interim dividend of 3.85¢ per share last year. When it raised $140 million in August to help fund its expansion, the new shares were issued at $1.14.
“We are incredibly well funded, we have no corporate debt, we have a profitable business that we can use to fuel this expansion into these markets and we are going into them with a proven and well-tested product,” said Humm CEO Rebecca James. “We can self-fund this expansion.”
The presentation showed customers flocking to instalment products as the credit card book shrinks. This reflects the big consumer shift away from revolving credit, towards paying over time in fixed instalments, along with credit card customers using COVID stimulus payments to reduce costly balances.
Humm has 2.6 million customers, up 40 per cent over the past year as customers take up its new digital shopping offering. App downloads were up 89 per cent to 540,000 at the end of the half, with new monthly downloads almost 20,000 in December. Sales using the buy now, pay later products, which don’t charge interest to consumers but can levy monthly account fees, were $473 million for the half, up 14 per cent.
Volumes for Humm’s ‘Little things’ product (instalment plans for amounts less than $2000) rose 46.5 per cent to $112.2 million.
Bundll - which allows customers to “buy now, pay anywhere” at any retailer like a credit card, in contrast to Afterpay which requires retailer integrations - has attracted 52,000 customers and had 321,000 transactions in December worth $11.4 million. Last November, it announced plans to export this product via a deal with Mastercard to global banks to allow them to modernise credit card offerings.
With the Humm share price languishing as other buy now, pay later stocks take off, Ms James said the market is catching up with Humm’s growth rates. She said Humm has double the customer numbers, revenue and volumes of next three listed ASX players - Openpay, Layby and Payright - combined; while Humm has the same number of Australian and NZ customers as Zip while generating 70 per cent more revenue. Its big discount on the ASX could be explained by it not targeting growth in global markets, which it is now doing.
Total transaction volumes of $1.25 billion for the half were down 7.4 per cent on the previous first half, due to a sharp decline in credit card spending. Credit card volumes of $200.8 million were down 43.2 per cent due to a slowdown in travel and hospitality. But the card business, which is called humm 90 and charges interest rates to consumers, is more profitable than the buy now, pay later products. Cards net profit was up 88 per cent to $12.2 million after the release of a COVID-19 related overlay.
Its commercial and leasing business, which is now SME financing for equipment and the construction industry, was much stronger. Cash net profit from this division was $13.8 million, up 46.8 per cent.
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