Trading Update due tomorrow?, page-9

It is amazing that nowhere in Humm’s annual report is the deplorable share price explicitly acknowledged. The nearest comment is the Chairman saying “we enter FY24 with a clear focus on improving total shareholder returns and deliver [sic] sustainable profitable growth in the years [plural] ahead.” The CEO repeats this and says “in doing so, restoring confidence and shareholder value”. They don’t seem to be in any hurry.

CEO (P3) said “we closed lower transaction value products… and the majority of costs [were] removed by 30 June 23”. I hope that’s true, as p10 shows “suspended products” lost $33m after tax in FY 23 and $20m in FY22. We need to hear at the agm how much this segment lost in the 30 Sept quarter, and the expectation for FY24.

Humm stretches the concept of normalised profit. It’s OK to remove genuine one-offs. Adding back all the depreciation charge is unjustifiable since deprecation is a method of smoothing out capex which a co must spend to stay in business. If you want to add back deprecation to get a “cash” result, you should then also subtract capex. Also adding back the AASB9 provision for “expected’ bad debts is highly dubious. The idea is to create a provision for likely levels of bad debts that will be inevitably incurred by writing new business, a bit like deprecation- this tries to smooth out the bad debt write-offs rather than have more the volatile result of writing them off only when they go bad. For high growth cos like Humm it’s important to allow promptly for the likely extra level of bad debts that the growth will bring- just as interest spreads of future profits are locked in at the beginning for 4 or 5 years on leased assets. At least Humm is transparent about what it’s done for normalised profit, but I think it’s too rose-tinted.