Latitude share price slides as CEO exits, profit plunges

After an eventful half that saw it cancel a takeover for Humm's BNPL business, the company's dividend remains at the same level for a yield of nearly 10%.

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Key points

  • Latitude Group has released its first-half results to the end of June
  • Managing director and chief executive Ahmed Fahour is retiring by end of August 2023
  • The company has retained the same dividend as last year

The Latitude Group Holdings Ltd (ASX: LFS) share price is down in early trade Friday after the first-half results for FY22 and the exit of its chief executive were announced.

At the time of writing, the financial services provider's shares are down 0.63% to $1.58 apiece.

What did the company report?

  • Statutory net profit after tax (NPAT) of $30.6 million, down 57% half-on-half and down 66% year-on-year (YoY)
  • Cash net profit after tax of $93 million, down 11% YoY
  • Total operating income of $370.4 million, down 9% YoY
  • Dividend remains the same as 2H21 and 1H21 — 7.85 cents per share fully franked
  • Managing director and chief executive Ahmed Fahour to retire by the end of August 2023 after more than four years in the position

What else happened in 1H22?

The major event for Latitude during the half-year was its attempted acquisition of the buy now, pay later business of Humm Group Ltd (ASX: HUM).

The $250 million proposal was ultimately mutually terminated. While neither party officially put up a reason for backing out, the business' poor performance updates likely didn't help.

The market consensus seemed to be that Latitude dodged a bullet. The Latitude share price rocketed up after the cancellation of the deal, while Humm's valuation plummeted.

Earlier this month, which was well after the first half ended, Latitude sold its insurance arm Hallmark to St Andrew Insurance Group.

What did management say?

Fahour said of the first-half result:

The cash NPAT result of $93 million, which is above consensus forecast, and our strong underlying balance sheet highlight Latitude's competitive and strategic advantage at a time of economic uncertainty. We have positioned the business to take advantage of the growth opportunities that we believe will emerge in the next 12-18 months. 

He then said of his departure:

While this is a difficult decision, after four years as CEO, now is the right time to prepare for my departure next year and support the Board as it plans for my succession as chief executive.

Getting Latitude ready for life as a public company and then realising that goal during a global pandemic with last year's IPO is something that I am particularly proud of.

What's next?

Latitude declined to give specific guidance for the second half and the full year.

However, the board stated:

Despite increased funding costs with the sharp rise in official interest rates in Australia and New Zealand, product re-pricing and other implemented measures will help offset the impact on margins. 

Latitude will gain further benefits from the full integration of Symple Loans, the growth in travel, cost discipline and productivity increases.

While unemployment remains low, Latitude anticipates delinquencies to stay below historical levels and it will persist with a prudent approach to credit underwriting. Receivables growth should be less affected by elevated repayments as higher cash rates erode excess consumer savings and governments end COVID-related financial assistance. Latitude's instalments business will also benefit as the higher cash rate adds to the attraction of its 'interest free' proposition. 

Latitude Group share price snapshot

The Latitude share price has dipped more than 20% this year to date.

However, it has rallied nicely from its 23 June trough, having put on more than 47% since then.

The dividend yield currently sits at an eye-popping 9.9%.

Motley Fool contributor Tony Yoo 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 recommended Humm Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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