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PCF equity raise worth buying into

The Aim-traded specialist bank is growing strongly and the company's placing and open offer is well worth backing

Aim-traded specialist bank PCF (PCF:32p) is raising £10.75m through a placing and open offer for shares at 30p. The proceeds will be used to fund the bank’s organic growth in vehicle and asset finance, particularly in the prime market; support and grow last autumn’s acquisition of Azule, a specialist funding provider to individuals and businesses in the broadcast and media industry; and enable the bank’s new property bridging finance to grow beyond its initial lending target of £20m.

Having increased the loan portfolio by half to £219m in the financial year to the end of September 2018, the lending book increased in value to £250m in the final quarter of 2018, mainly funded by a retail deposit base of £203m held across 4,600 low interest bearing accounts and an attractive four-year line of credit at a base rate of 0.75 per cent from the Bank of England’s Term Funding Scheme. I can reveal that PCF is targeting new business originations of £250m in the financial year to the end of September 2019, so should achieve its £350m initial lending target 12 months ahead of schedule as well as making a return on equity of 12.5 per cent.

Chief executive Scott Maybury says the target is to achieve a portfolio of receivables of £750m and a return on equity of 15 per cent by September 2022. With credit quality strong – the loan impairment charge was maintained at 0.5 per cent of the lending book in 2018 – and net interest margins stable at 8.2 per cent, then as receivables increase profit growth can be expected to accelerate given the operating leverage of the business.

Analysts are predicting a 50 per cent hike in pre-tax profit to £8.1m in the 12 months to the end of September 2019. The new equity raised increases the issued share capital by 16.7 per cent to 250m shares, implying PCF should make fully diluted EPS of 2.8p this year, rising to 3.5p in 2020 based on pre-tax profit estimates of £10.9m. On this basis, the shares are rated on 11.5 times 2019 EPS estimates, falling to nine times in 2020. That’s a low rating for a fast-growing challenger bank that is over-delivering and diversifying lending lines. There is a small progressive dividend, too.

Existing holders should take up the open offer at, 30p, and PCF's shares continue to rate a buy at the current offer price of 32p. Please note that I included the shares, at 27p, in my 2018 Bargain Shares Portfolio. Buy.


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