Humm Group [ASX:HUM] shares fell 20% on Friday after Humm and Latitude Group Holdings [ASX:LFS] terminated their BNPL sale agreement.
After months of speculation, Latitude’s proposed acquisition of Humm’s BNPL business has been scrapped.
Humm shareholders didn’t take too kindly to the announcement. HUM shares fell as much as 24% on Friday, with the fintech stock now down 55% in the past 12 months.
As for Latitude, its shares were down a comparatively modest 4% on Friday, with the LFS stock down 40% in the last 12 months:
Source: TradingView.com
Humm and Latitude call off BNPL deal
Latitude’s $250 million proposal to acquire Humm’s Consumer Finance (HCF) segment has been called off.
LFS and HUM announced on Friday that the termination was a mutual decision, citing the ‘current major disruption in financial markets’.
The announcement comes less than a week before a scheduled scheme of arrangement meeting to ratify the deal.
In a terse comment, Humm stated:
‘The Board of Humm continues to believe that HCF is a high-quality business and intends to review HCF’s strategic direction to focus on its core products and markets in order to restore profitability.
‘The Board and Management remain excited about flexicommercial’s prospects.’
Latitude’s comment was equally terse, with Latitude seeking to downplay any negative repercussions from the scuppered deal:
‘BNPL represents less than 1% of Latitude’s revenue and receivables.
‘Latitude Group is experiencing good organic volume growth, is profitable and well capitalised to execute on a number of opportunities ahead.’
The scrapping of the deal comes after several statements made by Andrew Abercrombie, the Director of Humm and one of its largest shareholders.
On 18 May, Abercrombie expressed that the proposed Latitude deal undervalued Humm’s HCF segment.
Humm Chair Christine Christian recently addressed Abercrombie’s public statements regarding the HCF sale, saying:
‘The Majority Directors believe that several of those statements are misleading and that therefore it is vital that Humm shareholders are provided with the facts.’
She then went on to make a prescient comment:
‘There is a material risk that Humm’s share price will fall significantly if the HCF Sale is not approved by Humm shareholders at next week’s General Meeting.
‘The Majority Directors also believe that the strong performance of Humm’s Commercial business could be negatively impacted if the HCF Sale does not proceed.
‘The stakes here are extremely high and Humm shareholders deserve the facts in order to make an informed decision about how to vote at next week’s General Meeting.’
HUM share price outlook — a tough climate for BNPL stocks
With the deal scrapped, Humm is now saddled with an unprofitable BNPL segment at a time when investors are running away from the sector.
Some of Humm’s BNPL rivals are down over 85% in the past 12 months.
With Latitude now walking away, Humm has to decide what to do with its BNPL business, which it admitted was struggling lately.
This week, Humm provided a trading update on its HCF financial performance, acknowledging the segment ‘remains under significant pressure’.
Year to date, the segment’s cash net profit after tax (CNPAT) declined by around 61%.
Net receivables also decreased 3.6% between December and May this year, and net operating income was down about 10% on the same period last year.
Expenses had increased by 15%.
Humm noted:
‘The trading environment is very tough for HCF, with intense competition, rising interest rates, and weakening consumer sentiment.
‘HCF has experienced a reduction in net receivables, net yield compression and higher expenses.’
So what’s next for Humm?
Surely shareholders will expect more detail on what went wrong with the Latitude deal.
I expect more announcements from Humm regarding this in the coming weeks.
Now ASX BNPL stocks aren’t the only ones down this year.
In fact, the ASX Small Ordinaries is down more than 25% year-to-date, which means the small caps sector is technically in a bear market.
Increasing interest rates, persistent supply chain snarls, and recession fears are clearly weighing on sentiment.
But opportunities are still out there.
The key is knowing where to look.
Our small-cap expert, Callum Newman, has a strategy for picking out ‘left-for-dead’ stocks most likely to bounce back.
You can find out how he does it, ‘grave-dancer’ style, here.
Regards,
Kiryll Prakapenka,
For Money Morning
