Humm Group may have to raise equity after profits smashed, says Morningstar analyst Shaun Ler.
Morningstar analyst Shaun Ler said the sharp deterioration in Humm’s profits revealed during the board’s battle to persuade shareholders to support the sale of the Humm consumer finance division to Latitude left it at risk of breaching covenants.Craig Sillitoe
Although Humm does not disclose its covenants, Mr Ler said its forecast equity to receivables ratio would fall to 17 per cent – much lower than its five-year average of 27 per cent – without a $150 million to $300 million raising. While Humm chairman Christine Christian said the deal value falling below the $260 million bottom of Kroll’s range was the justification for walking away, Mr Ler said the profit downgrade suggested there had been a big change in the operating environment since it was written “only about a month ago”.Ratings cut
“We also forecast higher operating expenses with growing signs that it needs considerably more outgoings than historically to operate,” Mr Ler said.On Monday, Macquarie analyst Josh Freiman cut his rating for Latitude from “outperform” to “neutral”, saying without access to HCF’s receivables book it would struggle to grow earnings as much as previously forecast.
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