Expectations for 2H Results

Some people may be a bit surprised that the SP reacted so strongly and so quickly to the upside following the release of 1H results. After all, the profit was only up by 5% compared to the pcp (1H 2015). I believe that the circa 15% increase we have experienced in the SP  has less to do with the 1H profit than it does with expectations for the 2H profit.  Although the profit for 1H was good and not great, but the other metrics were great. It is these numbers that have laid the foundation for expectations for a breakout profit in 2H. Here’s a view as to why:

1. Ledger purchases are way up on last year

In 1H, they were $101m. I expect purchases in 2H to be $97m, making total for 2016 of $198m. This is a whopping 38% increase over 2015 and makes the original guidance figure of $90-$120m seem a bit peculiar.  Having a ledger bigger book to collect on will 'obviously' not only improve the prospect for 2H results, it will also improve the figures in 2017.

1. Customer receipts are rising swiftly

In 1H, customer receipts were $188m. I expect the current momentum in both the ledger book and also the lending business to continue. Total 2H customer receipts will come in a touch under $200m

1. Debt Ledger revenues are also rising strongly

1H debt ledger revenues were up 11% on 2015. 2H should come in around $87m, a little higher than 1H. This projection may be pessimistic.

1. Consumer lending revenues are rocketing along

1H consumer lending revenues were up 63% on 2015. 2H should come in around $31m, about 18% higher than 1H.

1. Provisions on new consumer loans will increase, but only in proportion to the amount of new loans written

The 1H provision of $13m caught me by surprise. This was taken up on about $39m in new loans. I expect that they will write $42m in new loans in 2H and take up provisions of $14m.  

1. Marketing won’t go crazy and spend, spend, spend

The 1H marketing expense of $7.8m was higher than expected. I’m picking the same figure for 2H. A best guess is all we have here.

Adding all of this up, and the other expenses, I get a PBT of $34m, tax of $10m, leaving a NPAT of $24m. This is 13% higher than 1H and 31% higher than 2H 2015.  A final year divi of 25 cents/share will flow naturally from this profit.

Assuming all of this is approximately right, at the current SP of $11.32, then the current PE is a very reasonable 11.7 and the divi yield is 4.2%.

Please tell me that I have made a logical error, so that I can get rid of this temptation, this desire, to buy some more.

K