The Humm Group Ltd (ASX: HUM) share price has dropped despite the business reporting profit growth of 160% in the FY21 result.
Humm’s FY21 result
Humm revealed that its FY21 cash net profit after tax grew by 121.1% to $68.4 million and statutory net profit surged 160.2% to $60.1 million.
The cash net profit growth was driven by increased profitability of the commercial & leasing and cards segments.
Humm also said that cash net profit benefited from a “robust” credit performance leading to loan impairment expenses of $58.7 million, down 59.5% year on year.
Cash profit also includes a $21.6 million benefit from releasing some of its COVID-19 provision for potential losses. That reflects the benefit of improvements in the economic outlook.
Its total number of active customers increased 19.7% to 2.7 million.
The buy now, pay later part of the business saw solid growth, rising 31.3% to a total volume of $1.03 billion.
Humm’s commercial and leasing volume rose by 55.6% to $540.3 million.
Total volume of lending increased 8.2% to $2.69 billion year on year (and a 24% increase on FY19).
The group net loss compared to the average net receivables was 3.5%, a 60 basis points (0.60%) improvement compared to FY20. That essentially means that the amount of losses compared to the amount it had lent out fell in percentage terms, a positive.
Growth strategies
Humm is focused on a number of different growth initiatives including international expansion (such as the UK and Ireland), new product growth and new partnerships.
In the UK it has already signed over 300 retailers and Humm Canada will launch in the first half of FY22. Humm described the Canadian market as attractive with “strong” existing relationships and a complementary framework.
Assuming it gets regulatory approvals, Humm estimates these new geographies will add around $150 million in volumes in FY22. Management said growth is being managed within prudent credit and fraud risk controls set by the company.
Summary thoughts on Humm and the share price
The valuation on Humm is a bit strange compared to many of its peers. The ASX says Humm has a market cap of $465 million, meaning it’s priced at under 8 times the statutory profit made in FY21. We’ll have to see what the FY22 profit ends up being.
It also has $1 billion of BNPL volume, with more expected. I’d prefer to own a profitable business, like Humm, in the BNPL space than one that needs to keep raising capital to function.
Time will tell if Humm can carve out its own strong market position in the global BNPL sector.
