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Humm share price: Where next following Q3 trading update?

We examine the highlights from the BNPL company's third quarter report.

Humm Group (ticker: HUM) reported a strong set of Q3 results, revealing record volume growth in the March quarter and better credit performance overall.

The market responded optimistically, with the stock rising firmly on Thursday and Friday. HUM finished out the week at 94 cents per share, up over 9% during Friday's session.

Q3 Results in Focus

On the top line, Humm said its BNPL transaction volumes hit $255.3 million in the March quarter, implying growth of 33% year-on-year. Maybe most impressively, some $100 million of those volumes were booked in the month of March alone.

The company’s other segments saw a more mixed performance: Cards volume, across Australia and New Zealand, came in at $264.8 million, down 26.5% year-on-year, while Commercial and Leasing volumes rose 61.7% to hit $142.2 million.

This took total volumes processed by the Group to $663 million in the quarter, implying a sluggish growth rate of 3.5%. The company nonetheless said that this result reflects the benefits of diversification into product line-ups that ‘resonate’ with customers and merchants, such as BNPL.

From a credit perspective, net losses, which the company defines as 'gross write offs net of recoveries' came in at $18.7 million in the quarter, a 31.4% improvement, on a year-on-year basis.

Indeed, from a customer perspective, the business continues to do well, with total Humm Group customers reaching 2.7 million by the close of the quarter, representing a year-on-year increase of ~40%. Emphasising its digital first approach, Humm’s app has continued to draw in new users, with the company reporting over 300 thousand app downloads in the March quarter.

Commenting on these results, Humm’s Chief Executive, Rebecca James, said:

‘hummgroup has performed strongly with our bigger Buy Now Pay Later product – and the ability to finance larger ticket items over longer terms – continuing to be a key point of differentiation.’

For reference, Humm onboarded 1,111 new merchants during the quarter.

Where Next?

Humm has proven a divisive stock to the Australian market, with the name not only being earnings positive, but generally trading at a hefty discount to its peers, such as Afterpay.

Despite how the market is valuing the stock, analysts from UBS remain bullish on the company, reiterating a Buy rating and $1.60 price target in the wake of the Q3.

UBS was impressed by the momentum in the company’s BNPL business segment, while also saying 'We believe offshore expansion could be a strategic turning point for the company, although forecasting the net impact [...] at this early stage is difficult.'

Touching on the valuation question, UBS analysts said:

‘We do not believe the stock is priced for growth and see offshore success as a 'free option' – trading at only 6x PE in FY22E. We view HUM as the value play in the BNPL sector and retain Buy.’

Humm’s management said its expansion into the United Kingdom was on track to be completed by the end of this fiscal year.

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