Financial Grime 23 July 2018

Jul 23, 2018 / Financial Grime

  • As the loan cycle advances to its later stages where the supply of loans becomes more valuable than the supply of capital 1pm launches its first online consumer loan offer at www.carfinance2u.co.uk. This will protect 1pm’s margin as the brokerage costs will be eliminated. Although search engine optimisation can cost.

 

  • Begbies red flag alert notes a year on year increase of 9% in the number of companies in significant financial distress.

 

Tungsten Corp Plc – FY Results

Share Price 54p

Mkt Cap £68m

 

  • Results. Revenue was up 8% to £33.7m and the EBITDA loss was £4.6m vs £11.8m the prior year.  Revenue increase by £2.4m in the year and costs were reduced by £4.6m during the year.  The Network itself delivered an EBITDA of £2.4m so contributed for the first time while £1.3m loss was incurred by Network Finance from the £300k of revenue in this division. The current revenue run rate in this division is £1.6m. Group costs ran at £5.7m last year. Cash was £6.4m and the company has obtained a £4m facility after the year end.

 

  • Estimates The company expects £37.5m revenue in 2019 which is 11% growth, or £3.8m. Of this £1.3m is already visible by comparing the run rate of the network finance revenue vs last years reported number. This is in line with forecasts. EBITDA break even is forecast in the current year which provides a £3m loss for the year.

 

  • Valuation The shares trade at 2X revenue which valuation could double when the market has visibility on the potentially high operating margins from this platform.

 

  • Conclusion Following a shareholder revolt from Odey and others two new non executive directors will be appointed to the board and the EGM requisition has been withdrawn.  The company has the potential to double its valuation as clarity improves. There is no obvious catalyst for this today but it will likely happen in the next two years.

 

 

JTC Group – H1 Trading Update 

Share Price 400p

Mkt Cap £428m

 

  • Trading Update The company is reported to have traded “well” during H1 and sees continued opportunities for both organic and inorganic growth in H2.  Performance is in line with expectations

 

  • Expectations The market is expecting £74.4m revenue to Dec 18 (2017A £59.8m). Net debt is £22.9m so the company has some debt potential for acquisitions before the next equity raise.

 

  • Valuation PER is 24.5X December 2018 and yield 0.9%.

 

  • Conclusion  This is a good and overvalued business.

 

Paragon Banking Group – Trading Update

Share Price 502p

Mkt Cap £1.31bn

 

  • Update – Mortage lending is up 6.7% in the 9 months to June 18 with commercial lending being £449m vs mortgages at £1.13bn. Idem Capital made its first purchase of a portfolio of loans in the quarter buying a motor and asset finance portfolio.  Guidance remains unchanged in terms of volumes and costs.

 

  • Valuation Current year ROE is expected to be 11.6% and the company trades at a cheap 1.2X book

 

  • Conclusion The shares are up 24% over the last 12 months and have doubled from their low in 2016.  The commercial lending is shorter duration than the mortageges so the company will have to run faster to make this a material part of the loan book. Idem Capital is likely to have some very exciting opportunities if the valuation of some of the motor lenders is to be believed which means now is the time to exit Paragon and buy it when the motor lenders are in trouble and Idem is buying the distressed loan books then.