For Arrow Global (ARW), the Covid-19 crisis has morphed from "exactly the kind of situation" the debt collector was built for to “a potential once-in-a-lifetime multi-decade market opportunity”, interim results confirmed. While this breathless optimism sparked analyst predictions of a turnaround and an enthusiastic market reception, the numbers still leave plenty of reasons for concern.
Investors still need to start with the balance sheet. Though better-than-expected collections helped cash rise £77m, net debt was up at the half-year and must now include a €100m (£90m) facility securitised against a book of Arrow’s Portuguese loans post-period.
Underlining the scale of secured borrowings – which excludes about £91m of debt but nonetheless crept above the leverage comfort zone – the group was this month forced to renegotiate its debt covenants. As such, indebtedness looks even loftier when measured against shareholder equity, after a review of loan values forced the group to make a £134m non-cash impairment.
Should economic indicators avoid the worst economic fears and revert to Arrow’s base case scenario, then £43m of this could be reversed. As chief executive Lee Rochford tells it, momentum could soon swing in his favour as larger lenders look to cash out of their non-performing loans in the coming months.
Consensus forecasts are for adjusted earnings of 21.6p per share this year, and 23.3p in 2021.
| ARROW GLOBAL (ARW) | ||||
| ORD PRICE: | 90p | MARKET VALUE: | £160m | |
| TOUCH: | 89.3-90.4p | 12-MONTH HIGH: | 307p | LOW: 60p |
| DIVIDEND YIELD: | NIL | PE RATIO: | N/A | |
| NET ASSET VALUE: | 55p* | NET DEBT: | £1.25bn | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2019 | 95.0 | 32.5 | 13.0 | 4.4 |
| 2020 | 91.0 | -136 | -62.0 | nil |
| % change | -4 | - | - | - |
| Ex-div: | n/a | |||
| Payment: | n/a | |||
| *Includes intangible assets of £320m, or 181p a share. | ||||
