Global player set to spice up local mortgage market

A closer look at one ASX-listed mortgage provider’s operations reveals the business is set to become a force to be reckoned with in the financial services sector.

Pepper is best known in Australia for being one of the leading specialist lenders in the industry but the group is also an international, diversified company that commands 60 per cent of its revenue from overseas.

The Pepper Group’s annual report, released this week, shows that over the past four years the group has increased its combined lending and servicing assets under management (AUM) from $4 billion in 2012 to $45.5 billion at the end of 2015 – a compound annual growth rate (CAGR) of 126 per cent.

In addition to launching an auto finance offering in Australia, in the last 12 months Pepper has commenced residential lending in the UK and expanded its consumer lending products in South Korea. The group also acquired a 12 per cent stake in Hong Kong-based Prime Credit, investing alongside China Travel Service and York Capital.

Pepper achieved total income of $304.3 million in 2015, a 30 per cent increase on the previous year.

“Despite being best known as an Australian-based lender, our growing presence in regions such as Europe and Asia meant that 57.8 per cent of Pepper’s earnings came from our offshore businesses,” Pepper co-group CEOs Patrick Tuttle and Michael Culhane said.

Lending income was $105.9 million, up 27 per cent on last year, underpinned by record loan originations of $1.86 billion.

“Our Australian auto finance business also achieved solid growth, albeit we deliberately controlled the expansion of our distribution channels in 2015 in favour of bedding-in strong service standards to support future growth,” Pepper said.

Internationally, while Pepper’s newly launched UK mortgage lending business was slightly behind expectations, this was offset by strong consumer lending activity in Spain and South Korea.

As the group continues to build scale at home and abroad, one of the biggest exercises it is currently undertaking is a comprehensive rebrand.

“We are seeking to evolve our retail consumer lending name to Pepper Money, here in Australia and across the globe,” the group said.

“While we will always be Pepper, we want to be clear to consumers about what we offer and remove any confusion people may have regarding what we do. This increased consumer awareness will also assist brokers in selling Pepper products.”

In its annual report, Pepper is clear about its ambitions to become a leader across multiple markets.

“We want to be known as the brand that always delivers, the number one consumer finance house in every one of our markets.”

Pepper’s global presence undoubtedly puts it ahead of the curve as a local mortgage player, particularly if it can harness the insights of its international operations to gain a competitive advantage in the Australian mortgage market.

Being a non-bank lender in a market where ADIs are facing increasing regulatory pressure is also presenting significant advantages for the group.

Speaking on a roundtable for the Deloitte Australian Mortgage Report 2016, Mr Tuttle said this is already occurring.

“With all the regulatory capital changes going on, there is a huge opportunity for us,” he said.

“We expect above system growth this year, given our record November and December volumes combined with a strong start in the new year in terms of pipeline,” he said.

While he admitted that sustaining these levels will be challenging, Mr Tuttle said ongoing regulatory changes will ultimately provide strong tailwinds for Pepper’s local mortgage business.

[Related: Pepper searching for 'next big thing' in financial services]

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