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Non-Standard Finance and the dash for growth

The sub-prime lender is in the middle of a takeover battle with larger rival Provident Financial
March 11, 2019

Non-Standard Finance (NSF) may be trying to accentuate the positives as it makes a hostile bid for Provident Financial (PFG), but adjusted pre-tax profits for 2018 came in a touch below consensus expectations. Still, the sub-prime lender was 12 per cent ahead on that metric thanks to net loan book growth of more than a quarter, a 2.8 percentage point improvement in revenue yields and flat impairments.   

IC TIP: Hold at 60p

A full year’s contribution from guarantor lender George Banco boosted the net loan book for that lending specialism by 61 per cent to £83m, marking it as the group’s fastest growing business line. However, debt refinancing associated with that acquisition meant interest costs more than doubled to £21m.

The core branch-based lending business, Everyday Loans, reported that lending grew by a quarter to £186m, with 12 new branches opened, taking the total to 65 by the end of the year. Increased capacity meant the active customer base grew by almost a third to 61,200. However, the rate of expansion dragged on profit growth, which dipped 10 per cent on a normalised basis. With plans for just seven branch openings this year, management expects growth to pick back up.

Lending for home credit slowed during the second half, resulting in just 2 per cent growth in the net loan book over the year. Meanwhile, the revenue yield also dipped as the business shifted towards larger and longer-term loans. However, management expects that shift to be temporary and for yields to lift in 2019, with single-digit loan book growth over the medium term.

Analysts at Peel Hunt expect to downgrade their 2019 forecasts for adjusted pre-tax profits and EPS by between 5 and 10 per cent. They currently stand at £27.7m and 7.1p, respectively,

NON-STANDARD FINANCE (NSF)  
ORD PRICE:60pMARKET VALUE:£187m
TOUCH:59-60p12-MONTH HIGH:71pLOW: 49p
DIVIDEND YIELD:4.3%PE RATIO:NA
NET ASSET VALUE:67p*NET DEBT: 120%
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20159.2-16.1-21.3nil
201672.8-9.3-2.61.2
2017108-13.0-3.32.2
2018159-1.6-0.52.6
% change+47--+18
Ex-div:02 May   
Payment:07 Jun   
*Includes intangible assets of £154m, or 49p a share