The market would have eventually seen through the hype of the float of consumer finance company Latitude Financial Group, says Morningstar analyst Nathan Zaia.

Zaia, who last week produced a bearish report on the prospects of the float, was nevertheless surprised by the announcement on Wednesday that the float had been cancelled for the second time in 12 months.

“We are surprised that the offer got to this stage before getting pulled,” Zaia said on news of the announcement.

“But the number of risks stretching from being highly leveraged, growing competition, regulatory threats, and exposure to higher risk consumer lending - coupled with this being a private equity sell down - understandably just ended up being too much for investors to swallow.”

Latitude announced on Wednesday that it had failed to secure enough support for its $3.2 billion IPO in what was to be the largest float of the year.

Earlier in the week, the business, led by former Australia Post boss Ahmed Fahour, dropped its initial share pricing of $2, already at the low end of valuations, to $1.78.

Latitude’s private equity owners, including Kohlberg Kravis Roberts, Varde Partners and Deutsche Bank, are understood to be weighing their options.

In his pre-IPO entitled No Need to Buy Now, Zaia said the offer risked being overvalued and had set a fair value estimate of $2 a share, which made it a 3-star stock, with no moat – or sustainable competitive advantage.

“We don’t like that shareholders must commit without knowing the price and with the top end of the range 12.5 per cent above our valuation, we recommend investors don’t subscribe,” Zaia said in the report.

Following Wednesday’s announcement, Zaia cast doubt on the management’s original conviction to proceed.

“If the executive management team and the sellers had full faith in the long-term prospects of the business, it’s surprising that they are so concerned about how the shares would have traded upon listing,” Zaia said.

“Eventually the market would have to recognise the value in the company, right? Unless, as has happened many times before, this business was set up to look attractive right now – even if at the expense of the long-term.”

Latitude is one Australia’s largest consumer-financing businesses, providing personal loans, credit cards, and no-interest financing products, including a buy now, pay later (BNPL) platform called LatitudePay.

The company provides finance for customers looking to buy big-ticket household items, such as white goods, electronics and furniture.

It has about 2.6 million customers, 1900 merchant partners across Australia and New Zealand, and derives about 60 per cent of its business from big retailers such as JB HiFi (ASX: JBH), Harvey Norman (ASX: HVN) and The Good Guys.

The business model centres on borrowing money cheaply in wholesale debt markets, then lending to consumers at a much higher rate. The business was acquired from General Electric in 2015 and came to market via private equity owners KKR, Varde Partners and Deutsche Bank.

In October last year Latitude pulled an IPO valued at $4 billion after speculation it would be suspended.