Pepper Money launched its initial public offering yesterday, seeking A$500 million of capital with a pitch to investors that there are number of underserved customer segments where it is well placed to grow.
Pepper is issuing 173 million new shares at $2.89 a share. At the completion of the offer the company will have a total of 439.5 million shares on issue and a market capitalisation of $1.27 billion.
Trading of the shares on the Australian Securities Exchange is scheduled for May 27.
Pepper Money represents the Australian and New Zealand parts of the Pepper business. UK, Irish and other operations remain in the hands of Pepper Global, which will be the major shareholder in the listed company.
The funds raised from the IPO will be used to repay debt, including a loan from the parent company.
Pepper has been in the non-bank lending business since 2001 and has originated more than $30 billion of mortgages since then.
It started as a niche player, providing non-prime mortgages. Over the years it has expanded its product offerings to include prime mortgages, asset finance, small business loans and commercial real estate loans.
It originated $3.2 billion of Australian residential mortgages last year and has a book worth $10.4 billion. In New Zealand it originated $88 million of residential mortgages last year and has a book worth $109 million.
It originated $57 million of commercial real estate loans last year and has a book worth $100 million. It originated $1.2 billion of motor vehicle and equipment finance last year and has a book worth $2.6 billion.
It is also in the loan servicing business, managing loan portfolios for third party lenders. It is currently managing around $1.7 billion of loans.
The business is funded through warehouse facilities, public and private securitisations and loan sales. Non-bank lenders accounted for close to 80 per cent of RMBS issuance in 2020.
In the year to the end of December, the company earned net interest income of $352.2 million and made a net profit of $106.3 million.
It is forecasting net interest income of $356.3 million and net profit of $120.7 million this year.
According to the prospectus, the company’s core capability is its ability to “capture and analyse data it has generated from its 20-plus years of operation”.
It uses the data to “apply optimal risk-based pricing” to its products, using its own technology.
Pepper argues that there are a number of underserved segments in the Australian finance market, including non-conforming mortgages, self-employed borrowers, the used car market and the leisure vehicles market.
It is already operating in these niches and believes there is room to grow.