The Latitude Financial Services Group Ltd (ASX: LFS) initial public offering (IPO) has been a success and the share price had a strong start to life on the ASX.
What happened today?
This morning Latitude said that it has satisfied the conditions for the conditional market. The ASX has advised that Latitude shares will trade from the commencement of trading today (22 April 2021) on a normal settlement basis.
Whilst the Latitude share price did end at around $2.70 on 20 April 2021, it has since fallen back to $2.62 at the time of writing. That means that it’s now only slightly ahead of the IPO offer price.
Does the Latitude share price offer a lot of growth potential?
No-one can know what the share price of a business will do in the shorter term. However, Latitude has some positive comments about future growth.
Changing customer preferences and digital transformation continue to disrupt the consumer payments and loans markets traditionally served by banks. These changes underpin the large market opportunities available to the company, according to management.
In the consumer payments space, payments and traditional credit cards are being disrupted by buy now, pay later and interest free instalments. This is further being fueled by the growth of e-commerce.
Latitude believes that its BNPL and interest free platform is well positioned to gain share of consumer payments. It says that it’s the largest provider of interest free instalment finance in Australia and New Zealand, with the third most recognised BNPL product in Australia. Like others, its BNPL segment is growing quickly with relationships with retailers and it’s entering new segments.
In the consumer loans space, it says that challengers with specialist consumer finance capabilities are disrupting traditional banks. Digital lending and opening banking is providing significant opportunities.
Latitude is the third largest unsecured personal loan lender by new volume. Scale and specialisation underpin Latitude’s growth potential here.
Potential problems
There are potential risks, as outlined comprehensively in the prospectus. Credit risks (as a lender), financing funding, evolving regulatory requirements, COVID-19 impacts, changing consumer preferences, competition and so on.
Finance businesses with large balance sheets can mean some painful periods, particularly in recessions.
Is the Latitude share price a buy?
It’s hard to say at this point. I’m usually wary of investing in a newly-listed business. Seeing at least one statutory report could be a good idea.
Latitude shares were listed at 11.6 times the pro forma FY20 cash profit per share. It also had an an implied annualised dividend yield of 6% based on the expected FY21 half-year dividend.
It could be an option to consider for income if you want a higher yield and an investment option away from the mortgage-focused banks. However, I’d want to see that Latitude can generate profit growth before thinking about it for my own portfolio.
At the moment I’m happy to look at other ASX dividend shares with longer listed track records for paying income.
