The Humm Group Ltd (ASX: HUM) share price is under pressure today after the release of the company’s latest half-year results (1H FY21).
The buy now, pay later (BNPL) company delivered a significant uplift in net profit for the first half of FY21 but investors have responded by sending the Humm share price down 15.91% to $1.11 at the time of writing.
Humm share price sinks despite robust performance
Humm reported a 6.4% decrease in gross income to $225.2 million. The company indicated the fall is largely attributable to lower interest income in Australia Cards and reduced income from its discontinued consumer leasing portfolio. Similarly, gross profit was down 4.1% to $173.4 million for the same reasons.
Despite the company completing a capital raise in 1H21, its earnings per share and return on equity metrics were all up as a result of strong growth in cash net profit after tax (NPAT), which was up 25.8% to $43.3 million.
To add some perspective, Morgans is forecasting Afterpay Ltd (ASX: APT) to deliver an NPAT of $5 million and Zip Co Ltd (ASX: Z1P) to deliver an NPAT loss of $25 million this reporting season.
In the last 6 months, the company saw total customers increase 40% to 2.62 million and a significant uplift in total app downloads, increasing 89% to 540,000. This growth translated into a 14% increase in BNPL volume to $473 million, made up of a 293% increase in the number of transactions to 1.51 million.
Strategy for growth
The BNPL sector is a crowded space but Humm outlaid its plans to make the most of the rapidly growing industry.
The company highlighted its focus on displacing the $30 billion SME credit market in Australia, via its new product, Hummpro. Hummpro groups purchases into monthly balances, providing businesses an extra month to repay. The app charges a flat monthly fee when used, and additional fees to further extend the repayment period.
Humm is the only BNPL player in Ireland, and the company advised it is also gaining additional geographic exposure with planned launches into the United Kingdom and Canada in 2H21.
The company’s current BNPL exposure in Australia, New Zealand and Ireland gives it an approximate market opportunity of $517 billion. By adding the UK and Canada into the mix, this market opportunity expands to almost $2 trillion.
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Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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 Bruce Jackson.
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