What is Growth Strategy and Future Prospects of Pepper Company?

The company is actively automating existing product processes to significantly reduce the time brokers spend on applications.

Digital enhancements are being added to create a more frictionless experience for both customers and brokers.

Initiatives include electronic signatures, biometrics, auto approvals, automated valuations, and real-time payments for a fully automated experience.

Innovation extends to product development, with offerings like Pepper Flex providing easier access to competitive mortgage options.

The asset finance platform's API integration into introducers' CRM systems boosts 'speed to yes' and 'speed to cash,' contributing to strong growth.

Technological advancements enable the company to serve customers with complex or non-traditional financial histories effectively.

The net interest margin (NIM) for CY2024 saw an impressive increase of 12 basis points to 1.97%. This growth was observed across both mortgage and asset finance sectors, indicating improved profitability on its lending activities.

Capital raising through securitisations and whole loan sales exceeded $5.2 billion in 2024. This strategy is crucial for funding its expansion and managing its balance sheet effectively.

The company successfully completed its 40th Non-Conforming Mortgage Public securitisation at $1.25 billion. This was its largest Australian Dollar securitisation in 24 years, highlighting its strong access to capital markets.

A fully franked final dividend of 7.1 cents per share was declared for CY2024. This contributed to a total annualised dividend yield of 8.6%, reflecting a commitment to shareholder returns.

Analysts forecast earnings and revenue growth of approximately 8.5% and 8.4% per annum, respectively. This positive outlook suggests confidence in the company's future growth prospects.

A projected Return on Equity of 12.3% in three years indicates a strong potential for profitability and efficient capital utilisation, a key factor in the pepper company growth strategy.

The non-bank lending sector, representing 10-16% of Australia's lending market as of April 2025, is highly competitive. Major banks continue to dominate, particularly in investor lending, posing a constant challenge to market share growth.

The Consumer Data Right (CDR) is expanding to non-bank lending, with initial compliance deadlines in July and November 2026. This introduces new operational complexities and compliance burdens, although it aims to foster competition.

Ongoing cost-of-living issues and high interest rates are impacting consumer demand. This has particularly affected the asset finance division, which saw a 13% decrease in originations in CY2024.

Higher late-stage arrears and insolvencies, partly due to the withdrawal of COVID-19 government protections, have led to increased loan loss expenses. Loan losses as a percentage of lending AUM rose from 0.28% to 0.45% in 1H 2024.

In response to these risks, the company is prioritizing risk-adjusted returns. There's a strategic shift in asset finance originations towards higher-quality, lower-risk Tier A customers, who constituted 64% of asset finance AUM by the end of 2024.

The company maintains robust funding headroom and adequate provisions to effectively manage credit risk. This proactive approach aims to buffer against potential financial downturns and credit defaults.