A very comprehensive breakdown - well done.
Not surprised that the IF businesses in the group have no non performing debt - it’s not their on debt book that they collect.
However, the size of the under (>90 days) and non-performing (90+ days) Asset Finance book appears alarming does it not ?
I’m not sure what your point is tbh. But if the business doesn’t now grow with all the increased infrastructure costs, then they can’t blame outside forces that are already apparent to them ie Brexit. If the business does not now deliver the growth, then what’s the point in adding costs to support growth? I get that they stated it was a year of consolidation, but they’ve also increased the running costs to increase performance. Plus, taken on more potential debt. So in short, now they’ve consolidated, it’s time for increased performance. These are their promises and therefore stock holders expectations.
Not sure about you Steve, but I’m in this to see a return on my investment. Dividends are ok, but I don’t want to be tied to any one stock, relying on future predictions that don’t happen.
As I stated, if this business doesn’t deliver over the coming months, then this stock will suffer. It’s dropped 50% in 3 years and 30% y-o-y. That’s not growth. This sector is not attractive to a lot of people that’s why it’s cheap, so this business needs to over-perform and exceed expectations to attract investors.
I would have expected the rise in “brokered on” business to have increased profits, not decreased - It’s instant revenue !
With the very apparent higher costs associated with their management infrastructure and Brexit/Election excuses now out the way, the next few months are critical for this stock. I fear that if they don’t start to perform, the confidence of playing a waiting game will wear thin. Below expectations IMO (and the markets)
Now I’m really confused ?? At 8.34 on Monday you stated that you’d been told that there wouldn’t be a trading update, now you’re saying you didn’t say it ? But I thought you’d heard it from the CEO ???
Also, they don’t need to pay the dividend out of profits, they now have a loan-note to stick a plaster over any immediate problems.
When Macro events like elections are happening, I pay even more attention to my stocks, not less.
Sir, Your choice of words and phrasing leads me to believe that you have a direct influence on what is and isn’t announced, is that correct ?
Hi. Agreed that the ECL needs to be maintained throughout the life of the agreement, but once an agreement is terminated and linked to a sellable “hard asset”, then once it’s sold the proceeds go towards the o/s balance. Any remaining debt should be written off and then brought back in if and when any further monies are recovered - I’ve checked with other finance houses and this is standard industry practice.
If the debt is not secured against directly against a tangible asset for which the loan was provided - IE a “soft asset” or a loan, then the hit should be taken at point of termination.
The idea that you carry the provision on the balance sheet and never write it off just because you hold a PG, just wouldn’t work.
IE; you could hold a charge on a property and the courts decide that it can’t be enforced until the property is sold as there is a family living in it. Therefore you could wait years to recover your debt.
For this reason, once an agreement is terminated, the hit should be taken immediately and only upon receipt of any proceeds should the debt be credited.
If they aren’t adopting this standard policy, investors should be made aware and the full extent and age of the 90+ Day debt should be declared. There could be a potential large bad debt that’s not been realised and for one would like to know to what extent this is as its possibly one of the most potential threats that could hit a finance company..
Thanks for the detailed response and passing on the CFOs comments. Glad you’ve also done the calculations and I’m not the only one with a few concerns over the Y-on-Y changes.
One point I would also pick up on from the CFOs response is regarding when to take the hit on writing off bad debt;
“Once an agreement is effectively ‘terminated,’ you shouldn’t hang out for a potential payment from other means (ie PGs, other charges etc.) The bad debt should be taken at the point of termination and taken from the provision pot - thus taking an immediate hit in the P&L. If you then recover all/part of the o/s funds from those terminated agreements, this then filters back into the business as profit.
If you do not treat bad debt in this manner, you could effectively say that all terminated agreements that are supported by a PG etc are going to be recovered and never get written off and run the risk of having to declare a greater bad debt in the future. Thus not providing an accurate picture of the companies real state. If this is what’s happening, it is bad practice and begs the question as to how many of these agreements sit in the provision pot when they should be declared as bad debt?”
Maybe I need to email him to ask this question as it would never be evident in the accounts from this practice...
Why after adopting IFRS9 for performing debt should the provision fall from £1.235m in 2018 to £660k in 2019 ?
Provisions for non performing debt have gone up by £768k yet the total provision only increased by £196k. Something just doesn’t add up to me..
I do think many people look past the top and bottom line in the accounts. The big question mark to me is page 30 - the 90 days in arrears looks awful. Also the figures don’t appear to add up when you recalculate the provisions. Could be a big shock if a recession hits...
Surprised the stack of recent “buys” hasn’t pushed it up more. It’s a very similar SP performance comparison to Funding Circle - also in the SME non prime lending arena. I doubt many stock holders wish to sell atm - unless you invested some time ago, most of us will have paid considerably more than the current value. So it’s hold out for 4 weeks - all will be revealed...!
Amongst everything else that’s been discussed, main factors remain;
- Talk of a recession
- Brexit uncertainty
- Sub prime finance companies are currently out of flavour
- No statement from the Board ?!
All the good news and hype has never boomed this stock. In a few weeks once the results are launched, it’ll either recover or continue to be perceived as undervalued, but a poor bet.. .