“We retain our fair value estimate on no-moat Humm at AUD 0.85...

“We retain our fair value estimate on no-moat Humm at AUD 0.85 per share after updating our earnings projections. We expect Humm to see a cyclical earnings trough in fiscal 2023, with funding costs and bad debts expected to tick up while overall transaction volume growth stays subdued. It is expected to be a multiyear recovery though, with earnings expected to exceed fiscal 2022 levels (AUD 51 million) in fiscal 2026, and fiscal 2021 levels (AUD 68 million) in fiscal 2027. Shares screen as undervalued at current prices, as the market is likely sceptical of the earnings trajectory.

We like Humm’s continued business simplification, which involves exiting unprofitable segments (like hummpro and bundll) and improving its business processes. Both help alleviate downside risks from a potential recessionary environment. Cost-outs, higher product pricing, and overall manageable bad debt rates are likely to help Humm remain net profit after tax, or NPAT, profitable and keep the balance sheet in reasonable shape over our forecast period.

Higher product pricing is unlikely to materially dampen volumes in less contested products, such as in big-ticket buy now, pay later, or BNPL, and commercial financing—markets that Humm is rightfully prioritising over more competitive verticals like small ticket BNPL and credit cards. Humm has also refined its credit control with new processes, which we expect to keep future bad debt rates below historical levels. These include screening bank statements, income verification for large purchases, and tailored repayment plans for consumers in hardship. We project much faster growth in big-ticket BNPL and commercial financing volumes (on aggregate 10% per year) relative to small-ticket BNPL and credit cards (1% per year) over the next five years.

We maintain our High Uncertainty Rating for Humm, with uncertainty elevated by corporate restructuring amid a rising rate environment. “

Morningstar updated its analysis - now expecting a cap raise in 2025 - that’s a bit like reading tea leaves!

anyway here is a small excerpt