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Harmoney Investor Hub | (ASX: HMY)

Hanken Grotesk

Harmoney (ASX:HMY) Investor Hub

harmoney-2024-08-26-fy24-good-progress-in-a-tough-market.pdf

Harmoney's (HMY.AX) FY24 result was broadly in line with expectations (but with a one-off write-off), reflecting good cost-out progress amidst challenging market conditions. Key profitability metrics, including net interest margin (NIM) and risk-adjusted income, deteriorated in FY24 as expected. HMY's internal improvements meant it was somewhat more resilient to the deteriorating economic backdrop across ANZ than expected. Incurred credit loss percentage improved in 2H24 to 4.0% from 4.2% in 1H24, as the improved scorecard implemented two years ago benefited. HMY's completion of the Australian roll-out of its Stellare® 2.0 platform should see future efficiency and customer conversion rate benefits, which is set to roll out across NZ during 1H25. We see HMY profitable in FY25 at our Normalised NPAT line, but remaining at a Statutory NPAT loss as credit loss provision lifts substantially, due to expected loan book growth. We make amendments to estimates on slower short-term growth, but remain positive on the long-term opportunity. Our spot valuation falls -2cps to A$1.24.

Earnings: Our reported NPAT estimates fall -A$0.4m in FY25, -A$1.7m in FY26, but rise +A$1.1m in FY27.

Total income rose +14% to A$122.5m from increases in interest rates and average loan book. Reported NPAT loss of -A$13.2m included an -A$9.5m non-cash abnormal impairment, related to writing off its legacy tech stack as its new Stellare® 2.0 platform went live. On our preferred metric, the Normalised NPAT loss was -A$3.9m in FY24. The company reported +2% loan book growth over the year and achieved a solid reduction in its cost-to-income ratio, from 28% in the prior period to an impressive 24% in FY24.

Technology leads the way — Stellare® 2.0 implementation now fully complete in Australia

Over the period, HMY’s new Stellare® 2.0 platform was delivered into Australia and should create efficiencies in FY25 and FY26. A faster, more seamless loan application process for customers should see a notable increase in customer conversion rates, a key factor in growing the book. Originations in July 2024 were up +50% from July 2023, boding well for our FY25 expectation of +9% total book growth. Stellare® 2.0 implementation in NZ will occur over 1H25.

A weakened consumer holds back growth, but has not overly impacted credit metrics

A weakened consumer environment (elevated unemployment, household costs and interest rates) has dampened HMY's growth. Logically, higher interest rates have reduced demand for loans associated with home renovations, cars, weddings, and other life events that HMY funds (with HMY's closing loan book up only +2% on FY23). Lower credit losses in 2H24 partially reflects a diminished impact from HMY's older and poorer-performing Australian credit scorecard, with 90+ day arrears at only 0.43% of the loan book, well below the Equifax Australian Consumer Credit Demand Index 2024 Q2 average of 1.58%.

Forsyth Barr: Harmoney- FY24 — Good Progress in a Tough Market