Aim-traded shares of 1pm (OPM:60.5p), a specialist provider of finance to more than 20,000 small- and medium-sized enterprises (SMEs), have rallied by 27 per cent since I suggested buying ahead of the annual results (‘Exploiting the Brexit discount’, 31 July 2018). The price move is fully warranted.
True, acquisitions played a major part in 1pm lifting revenues by more than three quarters to £30m, but an organic growth rate of 30 per cent was mightily impressive and a major factor in annual pre-tax profits almost doubling to £7.9m. Moreover, EPS still increased by nearly a quarter to 7.57p after taking into account a placing and open offer that raised £13m to fund last year’s acquisitions. A £52m rise in the net lending portfolio to £123m, and one with decent credit quality (impairments equate to 1.2 per cent of year-end receivables), combined with a 1.1 percentage point improvement in its own blended cost of borrowing to 4.1 per cent, explains why 1pm’s profits soared. Lending lines include invoice discounting, factoring, asset finance and business loans, but brokering on business for cash commissions is important too, accounting for more than half of all originations last year. Cross selling across the different lending areas is another growing income stream.
Shareholders have been rightly rewarded with a 30 per cent rise in the dividend per share to 0.65p. Expect more hikes in the future given that 1pm is well funded (£66m headroom on current credit facilities) to meet ongoing loan demand from SMEs in a lending market that continues to be shunned by high street banks.
Trading below Hardman & Co’s forecast book value of 63p a share, on a modest forward PE ratio of 8 based on EPS estimates of 8.1p for the 12 months to end May 2019, and offering a prospective payout of 0.85p a share, 1pm’s shares are attractively priced for a company that’s just delivered a 13 per cent post tax return on equity. Buy.
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