Pepper tests lending boundaries
Non-bank lender Pepper Group is a measured beneficiary of limits on banks' growth in investment lending, and itself cautious on growth in this segment in Australia.Pepper's wider business, centred on loan servicing in the UK and Ireland as well as on a fast growing bank in South Korea, covers an expanding asset base and an earnings trajectory both true to the themes of Pepper's 2015 IPO.Its statutory net profit of A$61.6 million for the full year to December 2016 may be around ten times that of 2015, but it's a number the company disregards (as it did in the 2015 prospectus).Rather, an "adjusted NPAT" of $61.0 million, said to be up 26 per cent from $48.6 million in 2015, is the relevant comparison. Pepper has defined adjusted NPAT as "net profit after tax adding back acquisition amortisation," a measure inspired by its offshore expansion in recent years.These initiatives lifted assets under management 15 per cent to $52 billion.In Australia, 27 per cent of Pepper's loans are for investment purposes, a segment that may be no gravy train."It's a misnomer to say that all our growth is loans that would have gone to banks," Patrick Tuttle, Pepper's co-CEO said on Friday."We're also constrained by the bond market."But, Tuttle conceded, "we might do a bit more over the next six to 12 months."Two-thirds of all its lending remains non-conforming, much of it near-prime, and the balance prime.Arrears on the entire portfolio, at 1.36 per cent, are at the low end for its segment."It's one of the real positives," Tuttle said. "It shows up the credit quality in the non-conforming as well as the prime."We're not the size of CBA. We've got the luxury of being quite selective on the credit we underwrite."