Pepper Money is expanding its presence in the asset finance market, with the acquisition of broker Stratton Finance.

Pepper announced yesterday that it has executed a binding agreement to acquire a 65 per cent interest in Stratton for A$78 million.

Pepper will draw on its corporate debt facility to pay for the acquisition. The facility has a $200 million limit and currently has $50 million drawn.

It has an option to acquire the remain 35 per cent of the company, which it can exercise up to 2026.

Stratton has been in the asset finance broking business for 23 years and wrote $697.9 million of business in the 2020/21 financial year.

Pepper launched its asset finance division in 2014 and currently has $3.9 billion of assets in that part of the business. The bulk of it is vehicle finance.

Pepper chief executive Mario Rehayem said in a statement that the acquisition would give it an opportunity to grow in the direct-to-consumer distribution channel, which is one of Stratton’s strengths.

Most of Pepper’s asset finance sales are currently through brokers and motor dealers.

Pepper reported 84 per cent growth in originations to $8.5 billion and 19 per cent growth in its loan book to $15.8 billion in the 12 months to December. 

Mortgage originations of $6.4 billion were up 89 per cent and asset finance originations of $2.1 billion were up 70 per cent. Net interest income rose 4.1 per cent to $366.6 million.

Net profit from continuing operations rose 31.5 per cent to $130.7 million. The net interest margin fell 10 bps to 2.56 per cent and the cost-to-income ratio fell from 44.6 per cent to 43.3 per cent.

Pepper’s return on equity was 25 per cent.