Arrow Global (ARW) buys distressed debt portfolios from mainstream lenders, and has been growing fast. That's largely because it is accumulating loan books, and the earnings streams that come with them, faster than the loans are expiring. So underlying operating profit jumped 59 per cent during 2013 to £52.8m and customer accounts grew 42 per cent to 5.1m.
The group’s systems for managing borrowers in default also leaves it far better placed than mainstream lenders to boost collections from the portfolios it buys. Broker Numis Securities reckons that Arrow typically boosts paying customers in an acquired portfolio by 50 per cent, despite the vendors having already worked hard on the accounts prior to disposal.
Management reckons there are plenty of portfolios left to buy, even though it spent £101m last year buying portfolios with an aggregate face value of £1.37bn. That’s mainly because banks are under regulatory pressure to boost capital, and offloading non-performing loans in order to write back provisions is a good way to do that. Another source of growth could be expansion overseas or into new sectors. The group already has a presence in Portugal and, longer-term, Arrow could focus on student loan-books.
Numis expects adjusted EPS of 16.9p for 2014 (2013: 14.7p), rising to 20.3p in 2015, with a 2014 dividend of 5.25p.
ARROW GLOBAL (ARW) | ||||
|---|---|---|---|---|
| ORD PRICE: | 255p | MARKET VALUE: | £445m | |
| TOUCH: | 255-259p | 12-MONTH HIGH: | 278p | LOW: 216p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 26 | |
| NET ASSET VALUE: | 60p | NET DEBT: | 170% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010* | 20.0 | -2.0 | -0.2 | nil |
| 2011* | 49.9 | 6.2 | 0.5 | nil |
| 2012* | 65.8 | 12.1 | 7 | nil |
| 2013 | 94.7 | 21.0 | 10 | nil |
| % change | +44 | +74 | +43 | - |
Ex-div:- Payment:- *Prior to flotation | ||||
