Debt advisor Fairpoint Group reported a first half profit compared to a loss the same half a year earlier helped by a strong recovery at its IVA services division and as it continued to diversify its income streams.
The group reported a pre-tax profit of £2.1m in the six months ended June 30th 2012 compared to a £2.1m loss the same period a year before.
Revenue for the period rose 19% to £14.1m after a £2m increase in financial services revenues, mostly from its claims management services after strong growth for PPI claims. Debt management revenues grew by 11% to £2.8m.
At its IVA services division the group posted adjusted pre-tax profits of £1.4m versus a £700,000 loss previously following cost cuts and robust demand. IVA revenues were unchanged at £8.7m.
"Fairpoint has continued its strategy of growth through diversification with strong financial, operating and cash flow improvements during the first half of 2012. Early progress in the development of claims management services has been strong and additional products are under development to ensure continuing momentum in this area," the group said in a company statement.
"We are also well positioned to continue to play a leading role in the ongoing consolidation of the debt solutions market, as and when value-enhancing opportunities emerge to consolidate our market position and diversify our income streams."
Amid less than ideal IVA conditions, Fairpoint has done well to reduce its reliance on that business and to cut costs. While the IVA operation looks well placed for growth once interest rates begin rising again. Adjust for last year's one-off charges and broker Shore Capital expects earnings to rise over 80 per cent in 2012 to 12.8p. The shares are still rated on a mere five times that earnings forecast and trade below the group's reported net asset value. Add that to a hefty prospective dividend yield of nearly 8 per cent, and the fast-diminishing debt pile, and such a rating is too low..........good luck all.....
Fairpoint also offers debt management plans (DMP) – for people who can make repayments in some form, but need flexibility on the repayment schedule and the interest that accrues on the borrowings. Revenue here grew by a robust 29 per cent last year, to £5.3m, and the division has also received a boost after Fairpoint made four DMP back book acquisitions, taking the total number of schemes under management up to 15,838.
Tight cost control has helped the group to bring down borrowings rapidly – they've fallen from £6.4m at end-December to £1.6m last month. And that's before the receipt of proceeds from a successful effort to reclaim VAT – management reckons that could be worth around £4.5m. Moreover, the group's £8m debt facility with Royal Bank of Scotland, originally due to expire in December, has now been increased to £13m and extended to 2016.
In fact, Fairpoint's attempts to diversify away from IVAs is progressing well and, last year, income from the financial services arm more than doubled to £2.4m. Much of the improvement came from commencing a programme of payment protection insurance reclaim activity with the existing IVA customer base. The financial services business also includes a venture into pay-day lending under the group's Loanextra banner – a potentially promising source of growth. Although the weaker credit profiles of borrowers in this market makes this a risky area for newcomers and any credit control glitches could mean bad news for bad debts. Fairpoint's background in the IVA sector, however, should help it avoid such pitfalls.
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