My 2020 Bargain Shares portfolio has delivered a total return (TR) of 9.5 per cent since early February, during which time both the FTSE SmallCap and FTSE All-Share TR indices have shed 15 per cent of their value. However, investing is never a one-way street, and the laggard in my portfolio, Aim-traded specialist bank PCF (PCF:21p), has been impacted by the Covid-19-induced downturn.
Customers representing a third of PCF’s £401m loan book have made requests for payment holidays, as permitted under government guidance, which accounted for £1.6m of a £3.1m impairment provision in its half-year results and led to a 21 per cent fall in pre-tax profits to £2.6m. PCF has sensibly raised its target to generate 90 per cent of new business originations from prime credit categories, up from 80 per cent.
Interestingly, the consumer segment is performing best. The first half provision was only £1m on a loan book of £147m. Car finance accounts for 55 per cent of the consumer book and PCF diversified revenue streams into motor homes and caravans (combined 34 per cent), high-value assets which require borrowers to place decent deposits. Chief executive Scott Maybury expects demand for car loans will be further supported by a change in travel preferences through the recovery stage post-crisis. PCF is a beneficiary of the Covid-19 crisis in other areas, too. Its fledgling bridging finance business (average loan to value of 63 per cent) already had “excellent prospects” and now some other players have liquidity issues of their own.
| 2020 Bargain Shares Portfolio | ||||||
| Company name | TIDM | Market | Opening offer price 07.02.20 | Latest bid price 03.06.20 | Dividends | Percentage change (%) |
| Metal Tiger | MTR | Aim | 1.18p | 2.50p | 0.0p | 111.9% |
| Xaar | XAR | Main | 42p | 59.8p | 0.0p | 42.4% |
| Creightons | CRL | Main | 44p | 57p | 0.0p | 29.5% |
| Northamber | NAR | Aim | 54.9p | 63p | 0.3p | 15.3% |
| Cenkos Securities | CNKS | Aim | 56p | 54p | 0.0p | -3.6% |
| Chenavari Capital Solutions (see note one) | CCSL | Main | 61.4p | 40p | 0.0p | -9.4% |
| Anglo Eastern Plantations | AEP | Main | 570p | 496p | 0.0p | -13.0% |
| CIP Merchant Capital | CIP | Aim | 57p | 49p | 0.0p | -14.0% |
| Brand Architekts | BAR | Aim | 160p | 120p | 0.0p | -25.0% |
| PCF | PCF | Aim | 33.3p | 20p | 0.4p | -38.7% |
| Average | 9.5% | |||||
| FTSE All-Share Total Return index | 7,796 | 6,612 | -15.2% | |||
| FTSE Small-Cap Total Return index | 9,300 | 7,810 | -16.0% | |||
| FTSE AIM All-Share Total Return index | 1,099 | 1,023 | -6.9% | |||
| Note 1. Chenavari Capital Solutions made a compulsory capital redemption of 34.73 per cent of the shares capital at 85.72p a share, a cash return equating to 48 per cent of the initial capital invested. The total return in the above table takes into account the capital redemption. | ||||||
| Source: London Stock Exchange. | ||||||
PCF’s business finance segment took £2m of the impairment charge on a loan book of £203m, and 1,500 customers (£96m of the book) have made requests for payment holidays, mainly in transport, freight, bus, plant hire and media. However, they are higher quality borrowers who can access the UK Government’s bounceback loan schemes to ease cash flow and enable their businesses to resume operations in the weeks ahead as the lockdown ends.
A couple of months ago, I suggested the de-rating had gone too far (‘Deep value buying opportunities’, 8 April 2020). I maintain that view. PCF is well capitalised – total capital ratio of 17 per cent – and a high proportion of prime credit borrowers will avoid trashing their credit ratings at all costs. A price-to-book value of 0.83 times implies that 2020 profits will be wiped out completely and economic activity will be subdued in the subsequent recovery phase, a highly unlikely scenario in my view. Recovery buy.
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Simon Thompson was named 2019 Small Cap Journalist of the year at the 2019 Small Cap Awards.
