The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
We might get a trading update from NSF this week. It's useful to make an estimate of what the key numbers might be (if they give them) and see if the results are roughly in line.
Revenue
H2 2019: circa £95m
H1 2020: circa £92m
H2 2020 : hopefully in the same ball-park (£90-£95m), but might be reduced by GL division, which has rouble stopped lending for now.
Full year 2019 - £183.5m
Full year 2020 - hopefully no less that £185m
Loan Impairments
H2 2019: -£22.5m
H1 2020: -£39.2m (includes provision for FCA)
H2 2020 : -£25m?
Full year 2020 - probably around -£65m
Balance sheet:
Assets: at 30/9/20 NSF had cash of £70m and loan book of c £300m. Total assets £370m, against borrowings of -£330m. So a NAV of c£40m.
It will be interesting to see whether the cash pile is still growing and the loan book is still contracting. Hopefully the loan book will have at least stabilised.
I looked up the Director buys in NSF by Miles C-Turner, who was CEO of EDL until mid-2019.
His last notifiable buy was 48,000 shares @.357 on 27/6/2019, and the RNS states that he held 1,075,780 shares at that time.
Presumably these were mainly bought when the shares were a lot higher than 35p.
So Miles C-Turner probably invested something like £750k into NSF shares and he was buying right up to his resignation.
It shows real belief in the business model. If we could just get the FCA issues resolved and a Rights Issue done we could see a good rise here.
I wonder if Miles C-Turner still has them, or if he continued buying after he quite the company?
IPF recently re-financed a bond and the interest rate rose more than 2%, from under 8% to about 10%.
At least this isn't a problemn NSF has to face immediately. The current 'Term Loan' of £285m at 7.25% runs to 1/8/23.
There is also an RBS loan of £45m at 3.5%.
The company''s finance costs seem certain to rise materially in the next few years.
But the first challenge is to survive the current storm.
That's interesting.
He reports in 'early 2021'. I guess that the FCA will wait on this report before dealing with NSF, but I don't know.
We are completely in the hands of the FCA here.
When/ if the FCA regress a redress scheme then the company can do an equity raise underwritten by Alchemy and the company can move on.
It's impossible to know when the FCA will respond. Could be tomorrow or in 3 months time.
I think it's a dangerous assumption that new NSF equity can't be raised below 5p per share.
The Company Articles could be altered (probably on 50% of cast votes at an EGM). The nomainal price of the shares could be changed.
https://www.hardmanandco.com/wp-content/uploads/2020/11/201105-Hardman-NSF-November-2020-1H20-results.pdf
I spent some of yesterday reading some of Hardman & Co.'s 12-page reaction to the H1 results.
They were previously over-optimistic on NSF and have now turned over-pessimistic (in my view). They see no return to profitability until 2022.
They think that Alchemy's recent re-financing of Countrywide probably provides the model of what will happen here, with Alchemy becoming the majority owner. There would be an open offer for existing shareholders and a tender offer.
Fastfood - thanks for your reply. I’m not convinced that an equity raise would be massively oversubscribed. But I suppose they could pull it off by bringing in a new institutional investor. If Alchemy take 30% c.(£5m), the new ii takes 30% (c.£5m) then the other investors (mainly PI’s) might take up the remaining 40%. (c£6m).
There seems to be a lot of certainty about the impossibility of issuing new equity below the nominal price of 5p. But the company articles could be altered to change that, I suspect.
Fastfood - thanks for you interesting posts re NSF.
The company has committed itself to an equity raise, despite the low share price.
Do you have any view on how the company might do this?
Alchemy is the only obvious source for fresh equity, but how can they take new shares without going over 30%?
Thanks.
H1 Results seem a bit better than my estimates.
Revenue is higher than my estimate at £92.2m
Impairments are lower at £39.2m
Admin expenses are in line
P/L loss of £10m is as expected
What's a bit unclear to me from this is the extent to which the all-important negotiations with the FCA have been concluded. A provision of £16m has been made, but is this agreed with the FCA?
Disappointing to see they are still hoping to have an equity raise to support growth. That is not going to help the Share Price.
Should be interesting to see NSF's half year results on Friday.
I guess the most important thing we want to hear about is the FCA investigation. If they can report any progress towards a reolution here, that should lift the share price.
Re numbers. I reckon we are likely to see a 6 month loss in the £5m - £10m range and a shrinking of the loan book to something more like £275m. I'd expect:
Cash c.£50m
Revenue c£80m
Impairments & Admin: -c£75m
Finance costs - £12.5m
P/L - £7.5m
I'm hoping that the balance sheet will look strong enough to avoid a capital raise at this very low share price.
Happy to corrected on the above numbers.
If there are no unexpected & unwelcome surprises NSF could double over the next few months from here to 10p, which would only be £30m market cap which should be near the figure for net assets.
If Alchemy is going to make a move I can't see it happening until Q2 next year.
Some posters think that the free float on NSF is small or even 'tiny' I think one poster said. .
If you look at the significant shareholders page on the NSF website, there are only 3 big holders - Alchemy with 30%, Marathon with 11% and Neil Utley with about 8%. That's 49%, which means that the free float is about 50%. That's not tiny.
Hopefully we are only 2-3 weeks away from decent operational news here and the FCA will at some point release us from its deadly grip.
With a market cap of £14m NSF is priced to to go broke or be taken over by Alchemy for a song. That seems much too pessimistic to me.
Ragnar - very interesting. Thanks for posting
The sub-prime lending space is one of the sectors that really hasn't made a lot of progress from the lows of late March (although IPF is up about 50% from its lows).
Looking across the UK-quoted companies IPF looks the most promising, IMO.
It's a more complicated story than PFG or MCL or NSF, because it's international. But it's the most likely to get institutional buying on decent news or resumption of a divi next year, because of its scale.
That's probably correct. The FCA situation is going to take several months to sort out and the share price is going nowhere until that happens.
25% rise in Morses Club today. If we can just a positive update on the FCA situation with the Home Credit division here then we should rise in the same way.
What kind of timeframe are we looking at here, do we think? That is until NSF makes a further announcement re. engagement with the FCA and a plan to sort out their concerns in the Guarantor Loans division? Maybe a month?
I can't see the share price doing much until that announcement is made.
If/when this issue can be put behind us it's not impossible Alchemy will a bid, IMO. Instead of lending the company money against a debenture, why not buy the 70% of company they don't own? Maybe at 10p per share? Cost to Alchemy c.£20m.
Sorry, we know that ABERFORTH has sold 50m shares. Alchemy still has about 100m shares, and can't increase without making an offer for the whole business.
Barclays is probably just the Nominee here. As are the brokers holding about 1% of the stock each.
Thanks for flagging up simplywall.st, which is interesting and shows the top 25 shareholders. But this seems to be mainly updated only to May 1st, and things must have changed a lot since then. We know that Alchemy has sold 50m shares and that HSBC has bought 20m shares, but what has happened to Alchemy's other 30m shares? That's almost 10% of the company.
Annoyingly, the 'major shareholders' page on NSF's own website is updated only to March 31st, so is totally out of date.
I'd be surprised if POG had not already discussed the guarantee release position with Gazprombank before going public with the offer from the entity in Liechtenstein.