Pepper Money (ASX:PPM) share price jumps 7% on 'milestone after milestone'

The Motley Fool spoke to Pepper Money's CEO Mario Rehayem about what drove the company in the first half of 2021

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The Pepper Money Ltd (ASX: PPM) share price is in the green today following the release of the company's results for the first half of 2021.

Right now, the Pepper Money share price is $2.78, 6.92% higher than yesterday's close.

Pepper Money share price jumps on 46% profit increase

Here's how the loan provider performed over the first half of 2021:

  • Statutory net profit after tax of $56 million – up 41.1% on that of the first half of 2020
  • Ended the period with $16 billion of assets under management
  • Lending assets under management up by 5.2% to $14.3 billion
  • Record originations of $3.7 billion

Pepper Money's first few months on the ASX were profitable.

The company reported net profit after tax, adjusting for initial public offering (IPO)-related costs, of $66.1 million. That represents a 57.3% increase on that of the first half of 2020.

The number of new mortgage values on its books increased by 33.9% to $2.8 billion over the half-year ended 30 June 2021.

Pepper Money's asset quality remained strong. It reported its loss rates, excluding COVID-19 overlays, improved 9 basis points to 0.28% of lending assets under management over the first half.  

Additionally, its net interest margin improved 3 basis points to 2.59%. Pepper Money stated this reflected the increased scale of its asset finance business and ongoing improvements in its cost of funds.

Over the first 6 months of 2021, Pepper Money's mortgage losses fell by 4 basis points to 0.01% of assets under management, excluding COVID-19 management overlays. Pepper Money states this shows the quality of its asset portfolio.

Additionally, its mortgage and asset finance arrears of more than 90 days reached pre-COVID-19 levels over the half-year.

Finally, over the half, Pepper Money finalised 2 residential mortgage-backed securities transactions. Together, they raised more than $1.5 billion of securitisation. Pepper Money also secured $700 million in warehouse capacity for prime mortgages.

What happened in the first half for Pepper Money?

We asked Pepper Money's CEO Mario Rehayem about the last 6 months for the company and its share price.


Perhaps the most exciting news from Pepper Money over the 6 months ended 30 June 2021, was its debut on the ASX. Pepper Money's IPO occurred on May 25, 2021.

Speaking on the company's first few months on the public exchange, Rehayem said:

[Being a listed company] has been business as usual. We're very focused on delivering our business strategy and pushing the boundaries on automation digital, and tools to supply the marketplace. Obviously, we came out of the gates and the share price isn't as reflected from day one, but to be honest, that's not in our control and our number one focus is to deliver on our business strategy.

At the time of writing, the Pepper Money share price has fallen 3.8% from its prospectus' offering price of $2.89. Right now, shares in the company are trading for $2.78 apiece, 6.92% higher than their previous close.

Positive growth

While the share price hasn't moved in the way Pepper Money's initial investors might have hoped, it's been a positive 6 months for the company. Rehayem outlined numerous achievements the loan provider has surpassed recently:

We've had quite a number of milestones. It has been a very celebratory 6 months. We celebrated our 21st anniversary, we listed on the ASX, we've settled more loans than we've ever done in our 21-year history. We've helped 10,500 self-employed customers in the first half to obtain a loan – which is a record 27,000 customers in total.

It's just been milestone after milestone. It's definitely been a great 6 months and we look forward to continuing these milestones in the second half.

Let downs

While Pepper Money hasn't reported any major drawbacks, it hasn't all been smooth sailing. Rehayem commented:

From a macro perspective, obviously, the lockdowns, that's definitely been a low for us. But outside of that, our prepayments have been slightly higher than what we originally forecasted. The reasons for that are fairly obvious: it's a very competitive market [with] record low interest rates, cash-back offers and incentive offers by a lot of the major banks, especially with the TFF [term funding facility] that they have offering very low fixed rates. So, we saw movements of people either paying down their loans with us, or looking to refinance a way to get record low interest rates elsewhere.

Because we are a business that is focused on looking after our customers, we have now shifted ahead with a huge focus on ensuring this scene is a learning experience for us and we're looking to address the retention of our customers.

What did management say?

Commenting on Pepper Money's IPO, and its share price's downwards slide, Rehayem wasn't concerned. He said:

We always knew coming out of the gates from the listing could be a little bit turbulent because of the macro environment, but we have a very solid business strategy. We have a 20-year proven track record through the cycle.

The foundation of this business is extremely strong, we've had 10 years of double-digit growth in the business… The business is extremely well managed, it has many levers and it's diverse and flexible in the way it generates its revenue. The core segments that we play in have a huge corridor of growth, specifically the non-conforming segment of the market. Our technology is superior to our peers', and we've invested very heavily into technology that'll give us the scalability and efficiency that we need to continue growing for many years to come.

What's next for Pepper Money?

Here's what might drive the Pepper Money share price in FY22:

According to Rehayem, Pepper Money is set to continue its momentum, particularly as the Australian and New Zealand property markets are booming.

Additionally, the company's investment into technology is making its business more efficient and negating much of the impact COVID-19 lockdowns may have otherwise had. Rehayem also highlighted some of the technological initiatives the company is working towards:

[Going forward] we're focusing on the continual rollout of new products that will be distributed across our very extensive distribution footprint, across all of our asset classes both here in Australia and in New Zealand. We also have a number of initiatives that are coming out that will be focused on automation and digitisation. [These will] allow us to continue to scale up and keep a lid on our expenses.

As long as the market continues how it is, Pepper Money expects to bring in $120.7 million over 2021. It's also looking to hand out its first ASX dividend in the second quarter of calendar year 2022.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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