What Does AA Know?, page-134

Thanks Curlyhart- happy to help.

It is difficult for small shareholders to assess whether the opportunity cost (of holding $103m of unrestricted cash earning 3 or 4% pa v the $54m note cost of 12% pa and rising) is too high or worthwhile. For context, even if the interest differential is 10% pa pre-tax, on $53.6m that’s an opportunity cost of $3.7m pa after tax. Certainly not tiny, but “tolerable” for the freedom it provides (and compares with Humm’s guidance of a normalisedNPAT of $77m+ pa (see Outlook section of 1H23 results summary)

IF there is a credit crunch looming (and I’m sceptical about that) having a big chunk of unrestricted cash is extremely valuable to any business, especially in this sector. The big problem for investors is that we don’t have any detail on what pressure (if any) might be able to be applied by the funders of the securitisations, if the economy tightens severely and/or bad debts blow out. Humm is totally dependent on them to fund its business, and to maintain its growth. I have no reason to suspect that the funders could restrict or reduce their funding (unless there’s a huge rise in bad debts), but that-at least hypothetically- is the biggest threat to Humm’s business (and that of its competitors). It would be very good to have reassurance from Humm about this, but these funding models are wholesale only and release little or no info to the public. In the absence of more info, the Humm Board’s caution about the cash makes sense, at least for the next 12 months or so.

On your last point- I have recently asked Humm the same question.
Not advice. DYOR.