Yesterday Germany launched a 30 year bond with no interest payments at all.  If someone offers you nothing in return for the loan of your money its hard to have a mindset that goes “Great thankyou”. But that’s called fixed income “investing” now.  Perhaps all those equity investing words we grew up with like “growth rate” and “payout ratio” need replacing with words like “volatility” and “multi factor risk”.

Orchard Funding Group – Pre Close Update 

Share Price 76p

Mkt Cap £16m

Conflict Disclosure: I am a consultant

  • Update  The company has had a sound year. Lending volumes ar up 6.4% and the loan book at the year end up 4.5%. They also announce they intend to re submit their banking license application having looked at an acquisition and decided against it, as Paragon once did.  The bank application costs for last year are therefore expected to be lower than anticipated. The ex CFO of Heritable Bank Plc is appointed to the board.
  • Estimates House broker forecasts before bank application costs are 7.2p EPS and after bank application costs are 4.96p for July 19. This grows to 8.2p and 5.95p for the year to July 2020.
  • Valuation PER is 15.3X falling to 12.8X after bank application costs or 10.6X falling to 9.3X before bank application costs. July NAV is forecast to be £14.9m so this is a 7% premium to book value.
  • Conclusion This high quality loan book is growing modestly.  When growth accelerates the price will be very different. The company is investing in the infrastructure to accelerate the growth.

Randall & Quilter – New Program Partnerships

Share Price 158p

Mkt Cap £310m

Conflict Disclosure I Hold

  • Partnerships The company announces two new program management partnerships for Paragon where they will provide licenses and capacity for Paragon in New York specialist commercial transport. Also a UK MGA, Sophro will use R&Q to provide after the event insurance, while the existing First Underwriting MGA has extended its program partnership. There are no specific numbers attached to these but the statement says the company expects a “significant uplift in 2019 to the $500m of GWP premium underwritten in 2018 and the pipeline of program opportunities continues to grow.
  • Estimates Last year’s PBT of £14.3m had no contribution from the program business, while this year’s £41.6m PBT estimate is largely driven by the significant number of book transfer deals.  The program business is more highly rateable as it is recurring, capital light and high ROCE.  If we impute,say a 4% margin on the GWP run rate of $500m, we can get a number of $20m which is high margin. 
  • Valuation PER is 8.6X, Yield 5.9%
  • Conclusion The market has been spooked by the sale of shares around 180p by the CEO.  The program business is the area that will be the future and this encouraging update suggests there is plenty of upside as it builds.

jeremy@charltonillingworth.co.uk