Hits: 2

Research Payments

  • Yesterday I found myself surprised at how long it took me to reconcile the numbers in the Funding Circle statement to the numbers in the statutory accounts. As the two different categorisations tell very different stories.  And the I found myself wanting to reconcile the Gresham House strong story down to the individual funds to get clarity over what we are backing.
  • This takes time and is actually moving from being a blog to research so I wondered if I had a separate section which was company specific deep dive which was an email and a separate section on the website which over time built to a library from conviction situations whether I could get paid for this work which I would find interesting. In order to see if this is worth doing I would be grateful if readers could reply to this email with the word “intention” or “maybe” if they would entertain paying, say, £1k per annum to receive and have access to more detailed research which would be totally independent. For the avoidance of doubt that would be an indication for me to guage demand but not a commitment from either side to do anything.

News

  • Life expectancy declined by 5 months yesterday for people aged 65. That means Db scheme values reduce by 2.5% according to Aon.  Which may be good for Just in the short term and ultimately is likely to feed through to cheaper annuities.

Non Standard Finance Plc – FY Results

Share Price 59.4p

Mkt Cap £185m

  • Backdrop Given these results were scheduled for 12 March and Provi had delayed their results to 13 March in response to the bid from NSF and NSF decided last night at 6pm to bring forward results to this morning would suggest these results will be good. Bad numbers take longer to add up. The second implication is I now need to find a suit to head to analyst meeting. So much for a quiet Friday.
  • Results The opening line tells us underlying results are ahead of consensus.  Normalised revenue is up 39% to £166.5m while normalised PBT is up 12% to £14.8m. Reported loss is £1.6m vs £13m loss last year. Normalised EPS is up 8% to 3.7p (2018 3.4p) and the dividend is up 18% over the year to 2.6p. Current trade is in line with expectations. Headroom on debt facilities is £57.2m. There doesn’t seem to be anything new in the comments on the offer for Provident save the letters of intent are now for 49.4% of Provi rather than the 50+% previously following the recent sale of shares by one of the holders which makes the bid modestly less certain.
  • Divisionally Branch based increased its customers 30% with a loan book up 25% and stable impairments at 21.5%. Guarantor increased its customer numbers 44% with a loan book up 61% with 20% impairments. This growth is the area that has outperformed expectations. There is a £1.4m deduction for an increase in deferred consideration on George Banco and if this is added back it looks very strong. Home Credit increased its loan book 2% while impairments fell from 37.6% to 32.6% in line with guidance.
  • Estimates The results are a little ahead of consensus, or a little ahead of what it was before house analysts withdrew their forecasts. Going forward analysts look for 20% revenue growth and 36% adjusted PAT growth.
  • Valuation PER 8.7% yield 6.2%. Provi is on 10.9X and yield 6.1%. Morses Club is on 11.4X and yield is 5.1%. 
  • Conclusion Guarantor is going well while Home Credit is slowing. The bid for Provi looks likely to go through. Given the fact that Loans at Home is to be demerged into a separately listed company this is unlikely to be at an attractive valuation. One would imagine they are better giving it to Morses Club who I imagine would pay a fairer price than the market.  I suspect Morses Clube will be the beneficiary ultimately.

PCF Bank – Trading Update 

Share Price 32p

Mkt Cap £69m

  • Statement Originations are up 78% year on year with the loan book up 48% to £255m. 76% of originations are prime compares to 70% a year ago which means the target of a £350m loan book will be delivered ahead of expectations.  The company reiterates its 15% ROE target and £750m loan book target.
  • Estimates Consensus looks for 3.1p EPS in the year to September 19 and 3.98p in the year to September 20. There may be room to move these up a little but we are only 5 months into the year and anything could happen this year.
  • Valuation Following the £10m equity raise Equity will be c £55m so if we impute their targeted 15% ROE we would value that at roughly 2X book value or £110m, some 59% above the current level.
  • Conclusion There is plenty of upside to go for. It is easy to grow a lender fast but to grow it without impairments becoming a problem is rare. The fact that PCF is growing into the prime space will serve them well.