Ireland And UK Expansion And Digital Shift Will Unlock Potential

Key Takeaways

• Expansion into international and underserved markets, alongside digital transformation, is expected to drive sustainable growth and improve operational efficiency.
  
• Focus on compliance, evolving product offerings, and advanced credit analytics should strengthen market position and support stable profitability.
  
• Regulatory changes, increased credit losses, stiff competition, and ongoing tech investments threaten growth, margins, and profitability in Humm Group's core markets.

Catalysts

Provides various financial products and services in Australia, New Zealand, Ireland, the United Kingdom, and Canada.

• Ongoing international expansion-particularly strong performance in Ireland and early breakeven in the UK-positions the company to access large, underserved retail finance markets, which should drive sustained top-line revenue growth and diversified earnings.
  
• The transition to digital infrastructure, cloud migration, and investment in a new data platform, including AI initiatives, are expected to deliver significant operational efficiencies and enable scalable growth, resulting in lower operating expenses and improved net margins over the medium term.
  
• Continued refinement and rollout of regulated loan products and adaptations to evolving BNPL regulations should increase compliance robustness, restore volumes in mature markets like Australia, and protect long-term revenue and profitability as the consumer lending landscape matures.
  
• Rising global adoption of cashless payment solutions, ecommerce, and smartphone-driven consumer behavior expands the addressable market for flexible lending and payment offerings, underpinning long-term volume and revenue growth potential.
  
• The shift toward higher-quality, lower-credit-loss commercial and consumer lending products, driven by proprietary credit analytics and targeted underwriting, is likely to reduce net credit losses and support higher, more stable net profit margins going forward.

Humm Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Humm Group's revenue will grow by 53.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 12.2% today to 5.7% in 3 years time.
• Analysts expect earnings to reach A$57.3 million (and earnings per share of A$0.12) by about September 2028, up from A$34.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.2x on those 2028 earnings, which is the same as it is today today. This future PE is lower than the current PE for the AU Consumer Finance industry at 11.5x.
• Analysts expect the number of shares outstanding to decline by 0.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.53%, as per the Simply Wall St company report.

Humm Group Future Earnings Per Share Growth

Risks

• Softer than expected take-up and reduced volumes in the Australian humm loan product-driven by new BNPL regulations, fintech competition, and shifting consumer preferences-pose a risk to near-term and structural revenue growth, particularly in the company's core home market.
  
• Heightened and persistent credit losses in the Commercial portfolio (especially loans originated in FY '23) have eroded recent profitability; if elevated losses do not normalize as forecasted, net margins and earnings may underperform, especially in a macro environment with ongoing economic uncertainty and higher rates.
  
• Heavy investment in IT transformation and ongoing CapEx (with expectations of continued high spend through at least 2027) strains free cash flow and could pressure net margins and earnings if anticipated efficiency gains and revenue growth fail to materialize.
  
• The regulatory environment for consumer finance and BNPL businesses in Australia and globally is becoming increasingly strict, driving higher compliance costs, affecting product design, and potentially shrinking the addressable market, which may impact long-term revenue and profit growth.
  
• Intense competition from established payment providers, fintechs, and banks-along with industry consolidation and open banking advances-threatens customer acquisition, compresses net interest margins, and limits pricing power, presenting a risk to sustained earnings growth and market share retention.

Valuation

• The analysts have a consensus price target of A$0.805 for Humm Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$1.0 billion, earnings will come to A$57.3 million, and it would be trading on a PE ratio of 9.2x, assuming you use a discount rate of 11.5%.
  
• Given the current share price of A$0.65, the analyst price target of A$0.8 is 18.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.