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Arrow Global building fast

Arrow Global continues to buy debt portfolios at deeply discounted prices.
August 27, 2015

Arrow Global (ARW) delivered a robust first-half performance, with core collections on the debt portfolio up 42 per cent at £101m. The company buys up distressed loan portfolios and then uses its own data resources to maximise repayments, in part by allowing people to pay back at a rate they can afford.

IC TIP: Buy at 263.5p

This is turning out to be a lucrative business model. A total of £516m has now been spent on building a loan portfolio at deeply-discounted prices to face value. The company reckons that remaining collections over the next 10 years could be worth £1.13bn - up 4.5 per cent from last December's figure.

A total of £75.4m was spent in the period on acquiring new debt portfolios, compared with an estimated annual replacement rate of £68m as repayments reduce the size of the overall portfolio. Nearly 60 per cent of new investments were in the UK, with the remainder in mainland Europe. Crucially, around 88 per cent of these were achieved off-market, which means the company was not caught up in a bidding war with competitors. The purchases were also in line with a target income return of 2.1 times the purchase price. Acquisitions included two Portugal-focused loan servicing specialists: Whitestar, which cost €47.8m (£35m), and Gesphone at €8.1m.

Analysts at broker Numis Securities are forecasting full-year pre-tax profit of £40m and EPS of 19.7p (from £24.1m and 17p in 2014).

ARROW GLOBAL (ARW)
ORD PRICE:263.5pMARKET VALUE:£460m
TOUCH:260-263p12-MONTH HIGH:283pLOW: 215p
DIVIDEND YIELD:1.9%PE RATIO:24
NET ASSET VALUE:74p*NET DEBT:£508m

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201451.613.66.01.7
201576.716.47.01.7
% change+49+21+17-

Ex-div: 10 Sep

Payment: 8 Oct

*Includes intangible assets of £97m, or 55p a share