In morning trade on Friday, the Humm Group Ltd (ASX: HUM) share price is charging higher.
At the time of writing, the financial services company's shares are up 7% to $1.23.
Why is the Humm share price charging higher?
Investors have been buying Humm shares following the release of a first half trading update.
According to the release, the company is expecting to report strong profit growth for the six months ending 31 December 2020.
The release explains that the company's unaudited first half cash net profit after tax came in at $43.4 million. This will be a 25.8% increase on the $34.5 million it reported in the prior corresponding period.
Management advised that its cash profit growth has been driven largely by its continued focus on reducing underlying costs. It notes that its operating expenses for the half will be $87.2 million excluding loan impairment expense. This is down 11.1% from $98.1 million in the first half of FY 2020.
In addition to this, its loan impairment expense has reduced by 35.3% to $25 million as a result of lower actual losses and strong recoveries. Management advised that this reflects the benefit of continued investment in developing a superior credit decision platform and adopting a customer-centric approach to managing hardships and collections during the pandemic.
Also supporting its performance has been the success of its buy now pay later offering. The company now has a total of over 2.6 million customers, which is up 40.4% or 750,000 on the prior corresponding period.
Outlook
Management appears cautiously optimistic on the second half.
It commented: "While hummgroup's credit performance remains robust, the Company continues to take a prudent approach by monitoring the potential impact on arrears and losses from changes to government stimulus, and remains well provisioned for the future."
"In 2H21 hummgroup will be making new investments in marketing and people as it enters two international markets. As a result, the Company expects 2H21 Cash NPAT to be lower than 1H21," it added.
Interestingly, Humm hasn't provided any details in relation to its recently announced potential joint venture with the beleaguered Douugh Limited (ASX: DOU). However, some shareholders may be hoping the company finds another way to expand into the US market given the controversy surrounding the former neobank.
