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This chart shows just how exceptional the value vs growth performance of the last 10 years has been. The source is Robeco.

News

  • Funding Circle announces a new selling tool to be launched on 2 December which is expected to enhance lenders ability to sell their loans. At the last count the queue was 124 days long

International Personal Finance – Q3 Update

Share price 128p

Mkt cap £288m

Conflict Disclosure: No Holding

  • Update Trading is said to be “on track”. Europe credit growth is 6% while Mexico is down 12% as the company focuses on credit quality. Digital grew 3% as the company focuses on containing impairments, which ran at 43.7%. Impairments in middle of range at 27.8%. £197m headroom on facilities. The polish tax audit is concluded for 2010-2017 with earlier years now close to finalised. No further regulatory developments. Outlook is “on track”
  • Estimates A modest improvement in PBT to £113m is expected in 2019 which is forecast to accelerate to 11% in 2020.  Digital is expected to deliver its maiden profit in 2019.
  • Valuation The PER is 4.5X and yield 9.8% from a modestly geared balance sheet which has a NAV of £453m, some 57% ahead of the current share price.
  • Conclusion  With such an interesting valuation every investment bone makes me want to own this. But with the vast majority of the profits coming from Poland where the impact of the yet to be ratified rate cap and charge cap limits unclear it still remains in the “punt” camp rather than the “investment” camp. Frustrating.

Orchard Funding Group Plc – FY Results

Share Price 76p

Mkt Cap £16m

Conflict Disclosure: Consulting Client

  • Results Total lending was up 6% to £72.99m in the year and the loan book was up 3.8% to £32.1m. Good lending rates drove revenue up 5.9% to £5.17m and PBT grew 6.9% to £1.89m. EPS up 8.2% to 7.08p. DPS is maintained at 3p ahead of the company investing for a banking license.
  • Estimates Results are ahed of expectations both at the underlying level and reported level significantly ahead by virtue of the lack of bank application costs (expected £600k)Liberum estimates assume some rate compression in 2020 but the £600k bank investment costs that were provided in 2019 are now being provided at c £1m in 2020 and so a reported PBT decline is now forecast.
  • Valuation The ROE is 10.9% while the shares trade very modestly above tangible book value. In PE terms that is 10.7X the number just reported with a 4% yield
  • Conclusion The company is entering parallel lending areas as evidenced by the investment (at no cost) made into Accolade Education Finance during the year.  It may be difficult to predict the timing but with an array of other lending areas and a strategy to obtain a bank license with a strengthened board it seems very likely that the loan book growth will experience a catalyst to accelerate ahead of what are very modest forecasts.  This is the highest quality loan book and when it grows fast too the valuation will be very different.

jeremy@charltonillingworth.co.uk