We have no visibility on debt covenants and cannot assess their...

We have no visibility on debt covenants and cannot assess their robustness if earnings were to deteriorate. Knowing Humm’s debt covenants and their exact thresholds (for example, loss thresholds on receivables, interest/debt coverage metrics, or optimal levels of equity in the business) would support our assessment.

But in the absence of this detail, we’d have to draw lessons from the past. Following the 2008 Financial Crisis, Humm has tended to raise equity in periods when impairments pick up pace or when the unemployment rate borders/exceeds 5%. With tighter financial conditions impending, there is a chance that equity financing is needed to support compliance with covenants. Our fair value would rise to between AUD 0.60 and AUD 0.70 per share if it were to become clear that Humm has no need for a defensive equity raise over our forecast period.