BRUCE - Stockopedia on 1pm 16/1/193 Jun 2019 21:21
1pm (LON:OPM)
Share price: 46p (unch.)
No. of shares: 87.6 million
Market cap: £40 million
2019 Interim Results
This SME lender is doing fine - all the financial metrics making positive progress. Revenue up 15%, EPS up 12%.
The only slight negative is that the bad debt provision has nudged up to 2% of the portfolio (1.8% a year ago).
60% of loans it originates are forwarded on to other lenders, with the rest being funded on its own balance sheet.
Organic growth has been the focus over the past six months. Acquisitions are a possibility in the next phase of growth.
Outlook is optimistic.
My view
There is no reference to return on equity (ROE) in today's results - it would be helpful to get a comment on how the company sees this metric evolving for them.
At its final results for FY 2018, it reported return on capital of 13.3%, up from 11.5%.
A note published by Hardman says that ROE was 13% in FY 2018, and forecasts the same again in FY 2019 and FY 2020.
That's quite a reasonable level for an SME lender, in my view. Being paid research, I presume these forecasts match with what the company itself expects to achieve.
The company's history of acquisitions muddies the calculation, however - goodwill is £28 million, i.e. more than half of balance sheet equity. Tangible equity is just £23 million.
My portfolio holding, PCF (LON:PCF), currently trades at nearly 2x tangible equity. 1pm (LON:OPM) is at a similar multiple at the current share price.
I'd rather take a conservative view and value it based on tangible equity - from that perspective, 1pm looks fairly priced. While its P/E multiple is undoubtedly very cheap at just 6x, that looks to me like a fair reflection of the balance sheet position.
By the way, I note rumours that Atom Bank is about to be snapped up by BBVA. I wonder if this could become a trend - challenger banks getting bought out by the big names.
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