Profitless and fast growing Pepper closes on IPO

In the darkest days of the financial crisis (and in this case more like 2007 than 2008) rumours were rife that Pepper Homeloans, as the company was then known, may be about to hit the wall.

No shortage of niche non-bank lenders had already done so (or soon would), with operators in Pepper's home territory of non-conforming home loans among them.

Now, seven or eight years later, the well-considered business strategies of the firm now known as Pepper Group see it two weeks away from a listing on the Australian Securities Exchange.

The projected market capitalisation at the offer price of A$2.60 per share is $471 million. That market cap is roughly twice that of the mortgage aggregator Australian Finance Group, itself a recent ASX debutant.

The prospectus for the Pepper IPO shows the recent profits of the business to be slight, with the statutory profit for the calendar year ending December 2015 projected to be a mere $1.3 million.

This is down from profits of $25 million, $29 million and $38 million over the years 2012 to 2014.

The board and management have framed the prospectus and earnings forecasts around an "adjusted NPAT defined as net profit after tax adding back acquisition amortisation."

The prospectus declares "management believes adjusted NPAT is an important measure of the underlying earnings of the business due to the number of acquisitions during the historical period that has resulted in increased amortisation, which is a non-cash charge."

Acquisitions have been core to Pepper's post-GFC revival, with the firm a sophisticated buyer of stressed mortgage funding platforms in Australia, Spain, Ireland and South Korea.

Pepper will sell $145 million in new shares. Management and board shareholders will retain all their existing shares, a combined stake of 45 per cent, subject to escrow arrangements.

At December 2014 Pepper had $28.6 billion of assets under management but this may rise fast, with AUM projected to be $41.3 billion at the end of this year.