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FTSE 350 Outlook: Speciality & other finance

Created:
18 January 2008
Written by:
Jonas Crosland

Although there are only six stocks in the sector, their fortunes are as varied as the services they provide, which range from replacement vehicles for accident victims, through mezzanine and unsecured finance to online financial betting.

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But with the exception of IG Group (see results on page xx), which has benefited from a strong increase in financial betting linked directly to market volatility, the whole sector has been tarred with the same bearish brush in these tighter credit markets. However, as providers of non-standard loans, Cattles and Provident Financial are turning down significantly more business than they take on. Strict lending criteria have been maintained, and provisions have risen at a far slower pace than growth in the loan book. And the outlook remains bright as high street lenders retreat from the sub-prime lending market, leaving the field clear for specialists like Cattles and Provident Financial.

International Personal Finance has also seen its share price underperform, although the unsecured lender is successfully exporting its business model to countries outside the UK. And every indication suggests that the need for small loans (typically around £180) is stronger than ever.

For Helphire , which provides replacement vehicles for people involved in road accidents that are not their fault, turnover, profits, dividends and new business have all been strong. Only the share price has failed to perform. And Intermediate Capital has also remained subdued even though demand for mezzanine finance is growing, given the difficulties in raising funds through high street banks. The clear winner in terms of share price performance has been IG Group. Operating through spread-betting firm IG Index, its client base has risen sharply, pushing monthly revenue to record levels. And this trend looks set to continue as it broadens its operations through Europe, and above average market volatility continues.

Investor confidence in the coming year is unlikely to show much improvement, given that current projections are suggesting a notable decline in global economic activity. However, all six stocks in the sector enjoy strong business models and have shown little signs of distress as a result of the credit crunch. When the confidence returns, for the most part, their share prices have plenty of catching up to do.

Company name Price (p) Mkt val. (£m) P/E ratio Div. yld (%) 12M price chng.(%) Last IC view
CATTLES 243.5 883 8.1 7.41 -43.6 Good value, 284p, 18 December 2007
HELPHIRE 301.75 419 12.4 3.65 -26.76 Buy, 376p, 26 September 2007
IG GROUP 327 1,071 17.6 2.91 11.89 Fairly priced, 315p, 23 July 2007
INTERMEDIATE CAPITAL 1468 1,265 6.5 4.16 -13.25 Fairly priced, 1,622p, 26 November 2007
INTERNATIONAL PERSONAL FINANCE 183.5 472 NA 1.04 NA Buy, 235p, 11 September 2007
PROVIDENT FINANCIAL 731.5 960 11.4 7.36 -24.51 Fairly priced, 790p, 18 December 2007

MORE FTSE 350 OUTLOOK SECTORS:

See also:

Asset managers & invesetment banks

Banks

Insurance & insurance brokers

Life Assurance

For a full table of contents for the FTSE 350 Outlook series, click here.

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