Fintech lender Pepper Money [ASX:PPM] is furthering its rebound today.
The $962 million stock is up 5.8% at the time of writing, bolstering a more than 20% gain over the past two weeks. It truly seems like management may have finally reversed the company’s fortunes.
However, shares are still trading below their all-time high and debut prices — both of which sit around roughly $2.75 and $2.40, respectively. With that in mind, there is still clearly more work to be done to get shareholders back into the black.
For now, though, let’s take a closer look at what’s moving the stock today…
Snapping up some competition
As reported this morning, Pepper Money is acquiring Stratton Finance at a valuation of $120 million.
However, Pepper is only acquiring a 65% stake upfront. The remaining 35% stake has instead been placed into a Put and Call Option.
This means that when this option is exercisable (between Q1 2024 and Q1 2026), Pepper will have the right to acquire the rest of the business. By doing it this way, though, Stratton has the chance to collect more return based on the business’s performance.
What that means for Pepper shareholders is that management is paying $78 million for the initial stake right now, but the remaining stake held in this option may fetch a higher sum than its base price of $42 million currently.
With a strong history of success in primarily automotive lending, Pepper is clearly hoping Stratton will provide a strong revenue stream. After all, the acquisition will not only bring a lot of existing loans onto Pepper’s balance sheet but also many future loans as well.
As this morning’s announcement states: Stratton should bring an immediate $12.5 million in EBIDTA for FY22. And with Pepper looking to grow its overall operations, this sum should improve in the months and years to come.
Pepper CEO Mario Rehayem had this to say on the deal:
‘Our acquisition of the 65% stake in Stratton will enable us to accelerate the growth of the Asset Finance business, by providing opportunities to grow our direct-to-consumer offerings and leverage Stratton’s broad customer data to continue to develop innovative customer focused solutions.
‘Stratton is a business that is strongly aligned with Pepper Money’s core values and its purpose built technology already connects with Pepper Money’s Asset Finance Solana platform, positioning us to continue to drive strong business growth.’
What’s next for Pepper Money?
With this acquisition, it is clear that Pepper isn’t backing down from its growth ambitions. They are looking to continue to build on their position as a competitive nonbank lender and claim more market share.
After all, with interest rate rises looking likely in the coming months, things are bound to heat up in the lending sector. So Pepper won’t want to waste this opportunity to carve out an even bigger market share for themselves.
With any luck, Stratton’s assets and brand will become just another key piece in this matter.
If you’re still unsure about Pepper’s rebound, though, that is understandable. Despite some great progress, there are still plenty of headwinds for the entire fintech industry.
But that doesn’t mean you should ignore small caps altogether!
There are some great stocks out there to choose from right now — some of which have been overlooked or oversold to the point that you should really consider them. In fact, we’ve put together a list of seven small-cap stocks that we think every investor needs to know about right now.
Regards,
Ryan Clarkson-Ledward,
For Money Morning
