shibs research 11 Sep 2010 15:41
Current trading and Prospects
The businesses acquired have been transferred onto ClearDebt‟s more efficient
systems and relocated into smaller offices which significantly reduce operating costs
and hence improve their profitability.
On current form the Relax assets will generate almost £1m net cash in the second
half but report a small loss after amortisation and relocation and restructuring costs.
The strong performance in winning approval for new IVAs continues which will
augment long-term profitability at a cost to current margins. The two main sources of
profits are supervision fees on the growing back books of ClearDebt IVAs and
Abacus‟ DMPs, with small contributions from Abacus‟ new plans and other services.
In view of the IFRS requirement to expense rather than capitalise the restructuring
costs relating to the Relax assets, the increased marketing spend and the interest
payable on the £3m, we have reduced our forecast for the current year to £0.7m,
leading to earnings per share of 0.17p but increased that for 2010-11 to £1.8m
leading to undiluted eps of 0.42p.
Investors are naturally concerned about the declared intention to raise £3m,
more than half ClearDebt’s current market capitalisation, to refinance the
acquisition and this seems to be depressing the share price, which is on a
historic PER of 14x but only 4.5x our estimate for 2010-11. In our view it is
undervalued but there may be little change until the terms of the refinancing
are announced.
ClearDebt
Results show good momentum
ClearDebt offers debt resolution services, primarily IVAs and DMPs, using a
state-of-the-art web-based system for initial contact and individual supervision
of all the later stages in the process, resulting in a higher success rate and
lower overall costs than its competitors.
 Some may be disappointed that ClearDebt only reported quadrupled pre-tax
profits in the half-year to December but this is because they chose to plough
back most of operating profits into marketing to generate faster growth and
because they put a prudently realistic value of £3m on assets that Relax had
valued at over £6m. The six-fold increase in profits before exceptional items
is fairly impressive.
 ClearDebt had acquired Relax‟s book of business from the administrator for
£2.7m in a competitive bidding process so it seemed likely that the value
was nearer £3m than £6m but there had been speculation that they would
report negative goodwill of more than £1m and the £0.25m seemed an
anticlimax.
 This opportunistic move has accelerated the group‟s expansion by
quadrupling the number of insolvency cases under supervision and
increasing the number of DMPs by 70%; it also provides an entry into the
Scottish insolve
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