So, what can be done to break out of the Catch-22? I think it comes down to not only maintaining the growth story but also additional confidence boosting measures. A few thoughts – 1) Communication policy - there could be several reasons why the share price has not moved but I think the way the BOD have communicated with the market in the last couple of years may have contributed to some extent. The OPM share price hit the highest level in June 2014. If you look at the company’s RNS history, prior to mid-2014, we used to get frequent updates when additional funds were raised. Between Jan 2013 and Jun 2014, there were 9 RNS’s talking about increased funding lines. During this time the share price (adjusted for post-consolidation) went from about 18p to 84p. Between July 2014 and now, even though the company has continued to raise significant amount of funding, and at lower interest rates than before; the number of funding related RNS’s has been 0! In that period the share price has stalled. This might simply be a coincidence but I find it quite striking. In the last couple of years, the main communication with the market has been the 6 monthly results updates (and to some extent the Pre-Close trading updates) but not much in the intervening periods. So, the investors have no idea for almost 6 months as to what the company is doing. I am excluding the acquisition related RNS’s as these were one-off events. The funding related RNS’s of the past served 4 purposes – 1) to let the market know that there is demand for loans i.e. the loan portfolio is increasing. 2) the company can raise funds i.e. lenders have confidence in the company. 3) Each RNS made it more likely that the company gets on the radar of new investors – private and institutional. 4) As the RNS’s were provided between the 6 monthly results updates, they informed the investors that progress was continuously being made in growing the company. Even now, for example, if a funding line of £5 million is agreed, in my opinion, it is still worth an RNS because at the current market cap it still represents almost 1/7th of the company. The BOD need to be commended for achieving what they already have but having achieved great results, I think it might be worth looking again at the communication policy. Drip feeding even small but material updates at regular intervals may get the share price moving. 2) Director Buys – If ALL directors (not just RR) purchased shares on the open market then that would be an immediate confidence booster. 3) Somewhat controversial but if the BOD feel that the share price is grossly undervalued, and if they have available funds, then they could buy back shares. 4) Introduce Interim dividend as well.
Just like everyone else, including our CEO, I am also wondering - why the share price has not moved in the last 3 years or so even though the company has been ‘transformed’. When I ask myself, who might invest in OPM at present – 1) Day trader – with little share price movement, this would be a useless share 2) Someone with a short time horizon – not much help either as in the past almost 3 years, the share price has hardly moved 3) Someone investing for dividend yield – 0.75% yield is not very attractive 4) Institutional Investors - dividend yield is unattractive and uncertain prospects regarding share price appreciation given the last 3 years’ history. Also, many funds have certain minimum market-cap cut-off before they will get involved. So many II’s will not invest until the market cap hits say £50 million or even higher. 5) That leaves some, mostly private investors probably, who have known the company for a long time, have faith in the BOD and have a very looong time horizon – and there won’t be many of those around. This group on its own is unlikely to have a serious impact on the share price. But, I think, that small bunch of investors are probably going to be rewarded if they are patient. The company will either keep growing and keep increasing dividends or it will get taken over. It did very well following the recession of 2008-09 and hence there is a good chance that the Brexit related slowdown may actually help the company as other lenders restrict loans to SME’s.
The key are the II’s and I think at present we are stuck in a Catch-22 situation. II’s will not invest until the market cap goes up and if II’s don’t invest then the share price (market-cap) will not go up. I think the BOD are aware of this. Ian mentioned in one of the presentations that at some point RR might sell some of his holding to get more II’s on board. But I guess RR will not sell down his holding until the share price reaches a reasonable valuation. With the current P/E of 11.5 this is hardly the case. The average P/E of FTSE 100 i.e. blue chip slow growth companies, is around 14. For a fast-growing company, such as OPM, a modest P/E, in my opinion, could easily be approaching 18-20 which takes the share price to about 95-100p! Possible solutions in the next post....
Once again it hits the 70's then its ass falls out. Unfortunately bored investors will continue to sell and mm's will drop the price back down.
I would have liked to see more of a statement of intent from the BoD rather than preaching the cross-selling, which although an obvious advantage, seems a touch short-sighted when there seems to be a lack of a growth plan for the medium/long term.
...like the company; unsure about management after Maria; unsure about how much more competitive market is getting (and hence margin compression..why can they not source funds cheaper than 5%..so concerns about credit quality of their book/management)
..and for past couple of years 70-75p ha been tough tough ceiling
..cont to hold free carry of 8k (doubled to 16k pre results and flipped for measly 5-7% two day gain)
Happy with todays results, it falls in line with the last few years. The share keeps going from strength to strength but still it feels ignored by the vast majority of investors! I wish I had the balls to sell out but I can see me holding for the foreseeable future. Not long until the dividend is paid anyway so may as well hang around for that.
I agree, this is a well run company and the latest results are testament to that, however I can't help but feeling a bit underwhelmed with the undervalued SP progress. Hopefully with the 2 acquisitions now settled the group can kick on and expand.
Happy to be patient though, as this is one of those typical stocks that will start rising as soon as one sells!
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