Non-bank lender Pepper Money reports an increase in profit, but margin contraction on higher funding costs.
Pepper Money said the Reserve Bank’s interest rate increases since May had led to a significant decline in demand for housing loans, after it reported an 11 per cent increase in interim underlying net profit.for the three months from May to July 2022 declined by 21.6 per cent compared to the prior three-month period, 7.8 per cent on the same period of 2021, and 14.9 per cent in July versus June.
Chief executive Mario Rehayem said the lender was in the market for a $650 million residential mortgage-backed securities deal, where he expects pricing to plateau. He said Pepper’s established track record in securitisation markets would set it apart from other non-bank lenders that had struggled to complete deals.Mr Rehayem also said offshore investors’ negativity towards the Australian housing market had changed.
Pepper Money’s statutory net profit after tax was $72.2 million for the six months ended June 30, up 29 per cent from a year earlier. After adjusting for one-off expenses related to the Stratton Finance acquisition this year and IPO-related items last year, its underlying NPAT was up 11 per cent to $73.1 million.
But as concerns circle the non-bank lending sector’s ability to pass on higher funding costs to customers, Pepper said its margins fell considerably. Pepper will pay a fully franked interim dividend of 5.4¢ per share, representing a payout ratio of 32.5 per cent, and an annualised yield of 6.3 per cent.
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