Humm Group (formally Flexigroup) shares have never seemed to have quite the same appeal to investors such as peer’s Afterpay and Zip Co. However, with a fresh coat of paint and is one of the only EBITDA positive BNPL stocks, Should I Buy Humm Shares?

Should I Buy Humm Shares – About

Humm Group operates predominantly in the Australian Buy-Now-Pay-Later Industry. It currently operates in Australia, New Zealand, and Ireland, facilitating purchases for over 2.6 million customers.

The company also recently launched in the UK on 30 June 2021 targeting the $200billion home and home improvement, health, automotive, and luxury retail verticals.

The group operate in the below business segments:

  • Buy-Now-Pay Later (Aus, NZ, Ireland, UK)
  • Commercial and Leasing
  • Australian and NZ Cards Business

Humm Groups Business offerings are typically in the form of mobile applications which can be summed up as the below:

Humm Group Business Segments
Humm Group Business Segments Overview

Bundll is a BNPL product aimed at disrupting the debit card market is resonating. Inbuilt budgeting tools support financial wellness for customers. Typically this is targeted at users spending less than $500 (Think of buying your groceries or the latest fashion)

Humm is also a BNPL product similar to Bundll however, is typically used for much larger purchases between $2k and $30,000 and can be re-paid in slices with a longer duration to pay. (Think of buying a TV or homewares)

Humm90 is a more traditional product that is essentially a credit card with an interest-free period attached to it. Typically this would be used as ‘laybuy’ of a holiday or buying much larger furniture items etc.

hummpro suits business owners who want to effortlessly track their cash flow – from incidental spending to larger costs – all in one place. Customers can be approved in minutes and spending seconds later.

The group also have partnerships with Mastercard and Westpac in relation to the rollout of their services.

Humm Share Price

Shares in Humm Group are down about ~20% over the past 12-months to trade at a share price of $0.80 and a market capitalisation of $413million.

The group is trading towards the bottom of the 52-week range which is $0.78 – $1.36 per share.

Over the past 5-years, investors have seen the share price fall over 62%.

Humm Shares in The Prophet BNPL Index

Humm group currently sits around the middle of the pack when looking at Prophet’s BNPL index. The worst performer in the index has been Split-It Payments (SPT.ASX) which is down a massive 65% over the index timeframe.

The best performers in the BNPL index has been IOUPay, Zip Co and Afterpay up 37.5%, 26.3% and 7.8% respectively over the period.

Overall since publishing the theoretical index is down over 20% YTD. It seems the majority of interest may be over for the sector as Afterpay has now been acquired by Square.

Should I Buy Humm Shares – Investor Sentiment

After surveying 112 Investors about their current HUM shares sentiment: BUY-HOLD-SELL, as well as their target price over the next 12-months here are the results;

Investor Sentiment Humm Shares
Investor Sentiment Humm Shares

The results from this survey show there is currently a strong Bearish investor sentiment on ASX.HUM shares. So how much are HUM shares worth? Let’s get into it.

Should I Buy Humm Shares – Fundamentals

Market Cap$413 million
PE Ratio6.67x
EPS$0.126
DPS$0.00
NTA per share$0.83
ASX Rank498 of 2,308
Shares on Issue495,268,318
ROE7.9%
Debt$2.42billion
Equity$759million
Humm Group Shares Fundamentals

Humm groups return on equity has historically been low and currently sits at 7.9% this is in comparison to say Carsales which has a very high ROE of over 35%. The ROE of a company can be thought of as the return of a company less the liabilities.

ASX:HUM has a low P/E ratio in comparison to the broader market. However, low P/E should always be given an extra look over as investors are potentially expecting subdued growth in the years ahead.

As far back as when we first covered the company back in 2017, the group had a relatively low P/E and growth since 2017 has been sluggish, to say the least. One should always take into consideration their expectation for future growth when assessing low P/E companies.

PE 5: The company has very low investor sentiment regarding growth / is undervalued compared to the broader market

The Ultimate Stock DD Checklist

Market Cap:

Humm Group is a small-cap company with a total market capitalization of just over $400 million. This places it as the 498th largest listed ASX company by market cap. For a company of this size, we expect to see the company experience rapid growth. Because they don’t tend to be as established as mid or large-cap companies, they generally involve a higher level of risk.

Earnings, Debt, and NTA per Share:

We can see Humm shares currently have earnings per share of $0.126, this gives it its currently inflated PE of 6.78x. Another way of looking at this is that 15% of their share price is backed by solid earnings. They also have a significant amount of debt of $2.4 billion.

Should I Buy Humm Shares – Financials

The latest financials from Humm Group can be found in the Humm Group Investor Centre.

Over the last 5-years, Humm group have failed to significantly grow either revenue or net income. As a result, the group’s share price has tanked in comparison to other BNPL providers.

The group have also increased their levels of debt over the same period from $1.17billion in 2015 to now just over $2.4billion. This equates to a debt to equity ratio of over 300%. We are not overly excited to see this number so high particularly given the lacklustre top-line growth of the business.

Should I Buy Humm Shares - Income Statement

Humm Group for the year ended 2021 reported a gross income of $443.9million which was down slightly from the 2020 (restated) result. As a result of lower gross income net operating income was also slightly lower to $349.2million in the period.

The group generated a total of $81.9million of profit before income tax and a total comprehensible income of $69.9million for the period. This equated to 12c of earnings per Share which were up from 5.3c in the prior corresponding period.

Should I Buy Humm Group - FY21 Income Statement
Should I Buy Humm Group - FY21 Income Statement
Should I Buy Humm Group Shares - Balance Sheet

During the period FY21 humm group had total assets of 3.299billion vs a total liabilities of $2.54billion.

In the past, we have seen Humm group dramatically increase its debt position without a history of paying it down. We like companies with low-to-no debt.

HUM.ASX Balance Sheet FY21

Humm Shares Dividend History

Humm Group typically paid a twice-yearly dividend payment up until FY2020, when the company decided to suspend payments due to the COVID-19 pandemic. However, Humm Group has not yet resumed paying a dividend since this suspension.

The company list their full history of dividend payments on their dividend calendar.

Humm Group - Ownership and Insiders

Humm Group Shares - Ownership Breakdown

Humm is largely owned by the general public (47%) and Insiders (26%). Institutions own 22% of the company. Skin in the game helps ensure the management’s motives are in line with investors. For large-cap companies insider ownership will be typically lower, 3-5% is decent.

Recent Insider Transactions

In 2021 to date there have been a number of tradings by insiders and institutions. We can see purchases from insiders Andrew Abercrombie (Chairman) and Alistair Muir Director. Insider purchasing is a positive sign and shows their belief in the future of the company adding value to shareholders. Andrew however has been buying shares on-market since Flexigroup days way back in 2011.

However, we would have liked to see CEO Rebecca James hold additional shares and be buying on market in recent times.

DateValueNameEntitySharesMax Price
25 Aug 21+$192,997Andrew AbercrombieI200,353AU$0.96
23 Aug 21+$458,550Andrew AbercrombieI454,106AU$1.01
11 May 21+$582,640Andrew AbercrombieI650,000AU$0.90
06 May 21+$190,216Andrew AbercrombieI214,895AU$0.89
04 May 21+$26,921Alistair MuirI29,644AU$0.91
04 May 21+$121,795Andrew AbercrombieI135,105AU$0.90
03 May 21+$920,615Andrew AbercrombieI1,000,000AU$0.92
23 Mar 21+$485,100John WylieI495,000AU$0.98
Recent Insider Transactions for Humm Group

Should I Buy Humm Shares - Prophets Take

Prophet has been bullish on the Buy Now Pay Later Industry for some time, however, we believe we are now experiencing rotation out of this sector on the ASX. We believe a major catalyst for this has been the acquisition of Afterpay to US-based Square. Over time there may be some additional acquisition in this space however, we believe that Humm may be the case of too little too late having not particularly gained much meaningful traction across the globe.

Humm's P/E ratio of 6.7x may seem attractive to some value investors out there, however, it would pay to have a look into the groups future profitability and expectations for growth in the future. Should growth return than this may surprise investors.

We will be paying attention to the below factors in regards to Humm groups future reporting seasons:

  • Reduction of Debt and ability to service
  • Significantly increased top line growth outlook
  • Significant traction of the product into the UK and Ireland Markets
  • Free Cash flow
  • Increasing EPS

One of the biggest signs we will look for is if Humm Group has any level of success in the oversea's BNPL markets in the UK and Ireland that they have entered recently. Should the group be able to make inroads here it may be a catalyst for increased growth rates into the future. However, this is still too early to say at the moment and we believe is also a key risk for the business.

Should I Buy Humm Shares? Whilst we have been bullish on the BNPL sector over recent years, we will be staying away from Humm Group as the risk-reward is not in our opinion stacked heavily in our favour. We only make giant investments when there is a high probability of making a high return.

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