[Free] Slipstreaming: Australian Financial Services Special Situation Drama Resolved
Sometimes it is about watching X...
Article type: Special Situation Initial Coverage
Name/Ticker: Humm Group / ASX:HUM
Market cap: A$340m
Avg daily trading volume: ~650k shares
Timeframe: <6 months
Disclaimer: I own shares of Humm Group and stand to benefit if they rise in price. I may decide to purchase or sell shares at any time without prior notice. Do your own research and size positions appropriately if you invest. Nothing here is meant to be understood as investment or financial advice. I use AI tools to help me in my research, writing, and editing processes. Investing bears risk, such as loss of principal.
TL;DR
The Situation: Humm Group (ASX:HUM) has been embroiled in a governance battle between activist Jeremy Raper and founder/29.6% shareholder Andrew Abercrombie.
The Catalyst: Today, Abercrombie and the Chairman resigned from the Board, averting a proxy fight. Control of a pending takeover proposal has passed to an empowered Independent Board Committee (IBC).
The Valuation Gap: Credit Corp has an indicative offer of A$0.77/share via a Scheme of Arrangement. However, because Abercrombie retains a 26.6% stake, A$0.72 is the more probable base case. HUM shares traded today between A$0.64 and A$0.68.
The Play: An asymmetric merger arbitrage/activist slipstreaming setup. The absolute downside sits around A$0.58 (Abercrombie’s previous bid), potentially cushioned by the activists’ secondary plans for capital returns. While legal overhangs remain, the refreshed Board clears the runway for objective due diligence and value realization.
Introduction?
This is a quick, lower-effort article, and thus free. I entered a position today after an event happened that I see as important progress on the path towards valuation realization.
Today marks an inflection point in the ongoing governance drama at Humm Group. After months of public proxy battles, Takeover Panel interventions, and competing narratives, the company announced a sweeping board reconstitution. Founder and major shareholder Andrew Abercrombie, along with Chairman Robert Hines, have resigned with immediate effect. This paves the way for a newly refreshed Independent Board Committee (IBC) to objectively evaluate the company's strategic alternatives. At the current share price, this special situation offers an interesting setup.
For your reference, this article provides a good and free overview. Here is the main activist’s appearance on the YAVB podcast from January, and this is the activist project’s website (with more explanation, the timeline of events, and official filings — beware it could be biased, of course).
The Gist
In essence, Humm Group (ASX:HUM) was the target of a heavily discounted A$0.58 privatization attempt by its own founder and chairman, Andrew Abercrombie. Vocal activist investor Jeremy Raper built a position and agitated for board changes, arguing the Board was entrenched and failing to represent minority shareholders. His arguments were vindicated when the Australian Takeovers Panel issued a formal declaration of unacceptable circumstances. The Panel found that the Board had issued misleading statements regarding a superior A$0.77 non-binding offer from Credit Corp, failed to manage conflicts of interest, and allowed Mr. Abercrombie to purchase roughly 3% of the company just days after the rival offer was received.
Today’s news is a breakthrough. To avoid a messy Extraordinary General Meeting (EGM), Abercrombie and Chairman Hines have resigned. The Board is now reconstituted with two new independent directors and an empowered Independent Board Committee (IBC). Furthermore, the Takeovers Panel has frozen the voting rights on 15 million of Abercrombie’s recently acquired shares for six months. This creates a finite, six-month window for the IBC to properly engage with Credit Corp, open the data room to other potential strategic buyers, assess the activist’s capital return demands, and potentially unlock a transaction without internal interference.
However, it is important to note the precise mechanics of the Takeovers Panel ruling and today’s settlement. The Panel stripped Abercrombie of the 15 million shares (~3%) he acquired in December and vested them with ASIC. Under the Panel’s orders, ASIC is mandated to tender those specific shares into a Credit Corp off-market bid if acceptances reach 47.1% (pushing the deal over the 50.1% threshold).
However, Abercrombie retains his remaining ~26.6% stake and has not agreed to tender it. Furthermore, while he dropped his injunction to delay today’s EGM, the company confirmed his Federal Court application for a judicial review of the Takeovers Panel’s orders remains ongoing. The legal overhang is not entirely gone, but the immediate governance gridlock has been broken.
Finally, according to the project website, the original activist plan upon election at the EGM goes beyond the Credit Crop proposal and was as follows:
1 / Utilise franking credits
Our Company currently has over $15mm of unused franking credits (as of June’25). We intend to immediately declare a fully-franked special dividend of $15mm (~3.2 cents per share), out of excess capital, to utilize these franking credits and return value to shareholders.
2 / Institute, and execute, 10% buyback
Even accounting for the above special dividend, Humm would have ~$110mm of unrestricted cash, and a fully-adjusted corporate net cash position of ~$50mm. We immediately begin to execute upon a 10% buyback, over the ensuing 12 months, given where Humm stock currently trades (~4x adjusted earnings ex-cash) there would be no higher or better use for excess capital.
Note - even fully consuming this buyback would leave ample excess liquidity - about $80mm unrestricted cash - to allow for operational flexibility.
3 / Clarified dividend policy, higher payout ratio
In the last fiscal year, our Company generated 10.2 cents per share in adjusted cash earnings but paid only 2.3 cents per share in dividends - a woeful 25% payout ratio, despite the above-mentioned huge excess unrestricted cash position on the balance sheet.
The new Directors would immediately refine, and announce, a clarified dividend policy, subject to which sustainable dividends would be paid at a much higher payout ratio (subject to final Board approval).
We initially intend to pay a minimum of 75% of underlying cash earnings back to shareholders.
4 / Review loss-making Canadian business
The Canadian subsidiary, Humm Canada, lost $10mm last year and has been guided by management to lose another $6mm this year.
The new Directors would immediately place this business under review for possible restructuring; disposal; or wind-down, in consideration of its loss-making nature and deleterious consumption of group resources.
5 / Full strategic review to maximize shareholder value
Humm Group today constitutes two very different financial services businesses - Commercial and Consumer - with different strengths and weaknesses, and minimal synergies. Indeed the bloated Corporate cost overhead line-item - $17-21mm per annum, in the last two fiscal years - is at least partially a function of being forced to manage two such disparate businesses under the same group.
Under our new Board there will be no sacred cows. The new Directors will therefore undertake a fulsome strategic review, consideration both partial, full or separate sales of each of these businesses, to maximize shareholder value.
My Take
The non-binding offer by Credit Corp was for A$0.77, i.e. about A$0.10 higher than today’s trading price. However, the deal mechanics are vital: The A$0.77 offer is structured as a Scheme of Arrangement, which requires a 75% shareholder approval threshold. Because Abercrombie still holds an unencumbered ~26.6% of the company, he possesses a functional blocking stake. In recognition of a potential blocking, Credit Corp included a fallback option: an off-market takeover at A$0.72 per share, which only requires a 50.1% minimum acceptance. This lower threshold bypasses Abercrombie’s blocking stake.
Therefore, while the headline upside is A$0.77, the probabilistic base−case upside may be closer to A$0.72. On the downside, if the M&A process fails completely, I would expect the stock to drift back toward the level of Mr. Abercrombie’s original lowball offer around A$0.58 in the worst case.
Let’s map the high-level payout scenarios:
Downside: ~A$0.58 (-A$0.10)
Base Upside: ~A$0.72 (+A$4)
Bull Upside: ~A$0.77 (+A$9)
While the pure mathematical asymmetry (+9% vs -12%) might look pedestrian at face value, the probability distribution skews the setup favorably. Consider:
Fundamental Floor: If Credit Corp walks away, the activists’ alternative plans—executing a 10% buyback utilizing Humm’s ~A$110m in unrestricted cash and using A$15m in franking credits for dividends— might provide a cushion above Abercrombie’s A$0.58 bid.
Information Asymmetry: Credit Corp’s initial A$0.77 / A$0.72 offers were made before they had access to the books. Now that the IBC will likely grant due diligence, there is a chance the offer is revised upward, or that carving out Humm’s business units (Commercial vs. Consumer) unlocks alternative value.
Governance Discount Removed: The company is now officially ‘in play’ with an independent board evaluating it, drastically reducing the governance discount that plagued the stock all year.
The Potential for a Competitive Bidding Process: Until today, Mr. Abercrombie’s presence on the board and his vocal opposition to the Credit Corp deal effectively acted as a 'Keep Out' sign to other potential suitors. With the board now independent, the IBC has a fiduciary duty to maximize shareholder value, which likely involves running a market check. Furthermore, because Humm operates two distinct divisions (Commercial and Consumer) with minimal synergies, the strategic review could invite a sum-of-the-parts (SOTP) breakup. Other financial services players or private equity firms—who may only be interested in one specific book—can now enter the data room. If a competitive process or piecemeal sale emerges, the ultimate realization value could push past Credit Corp's initial A$0.77 offer.
The combination of these factors skews the situation already favorably, I believe. Further, when viewing the setup through a probability-weighted lens, the combined likelihood of the base and bull cases appears to outweigh the downside scenario.
While predicting exact probabilities of each scenario is an imperfect science, I view the payout distribution and the likelihood of a favorable outcome for this financial services company trading at 0.7 times book (according to Koyfin) as skewed in my favor.