Morningstar have put out an Analyst note on the deal. They cover...

Morningstar have put out an Analyst note on the deal. They cover Hum but not LFS.

The proposed deal will mainly comprise 150 million Latitude shares (worth AUD 300 million at the current AUD 2.00 stock price) and a smaller cash consideration of AUD 35 million. HCF is composed of Humm's better-prospect buy now, pay later, instalment and credit card businesses which the firm painstakingly revamped in the last three years. We currently project HCF to make up around 90% of Humm's cash NPAT by fiscal 2026. By then, we also expect each of HCF's segments to have superior NPAT margins than Humm's remaining commercial SME lending business. One can see HCF's appeal to Latitude. But our concern is the AUD 335 million purchase price considerably undervalues HCF. We estimate HCF has an AUD 470 million enterprise value, excluding any unrestricted cash on balance sheet. Latitude's proposal appears opportunistic, and is an attempt to buy HCF at a low earnings point while Humm: (1) invests for growth; and (2) awaits economic conditions to normalise as COVID-19 concerns dissipate. We forecast HCF to deliver cash NPAT of AUD 41 million in fiscal 2022--below fiscal 2021's AUD 46 million--before compounding at 17% per year to border AUD 80 million by fiscal 2026. Humm shareholders appear to be on the losing end. Assuming: (1) Latitude shares are fairly valued; and (2) HCF were to go at the current deal price, we estimate Humm is being valued at between AUD 0.90 and AUD 1.10 per share. This consists of the remaining commercial SME lending business (AUD 0.21 per share), HCF's proceeds (AUD 0.68 per share), and a proportion of unrestricted cash on balance sheet (worth between zero and AUD 0.22 per share). This valuation range implied by Latitude's offer is significantly below our unchanged AUD 1.40 fair value estimate for Humm.