Consumer finance provider Non-Standard Finance (LON: NSF) failed to acquire Provident Financial (LON: PFG) earlier this year and the interims on Tuesday provide an opportunity for management to lay out what the ongoing strategy will be.
The costs of the failed bid are likely to be at least £10m and will be taken as an exceptional. The share price has halved this year and the shares are trading on a rating more in line with other finance providers. Yet, prospects for the current operations appear good.
The group is the market leader in unsecured branch-based lending, which is growing, as is guarantor loans, where the company is taking share from the market leader. There could be an opportunity to nearly double the branch network to 120 branches.
The home credit business will have to improve its performance by reducing write-downs. This is not a focus of growth, but it could generate cash for the rest of the business.
Pre-tax profit is set to grow by 45% to £8m in the first half. There is a strong loan book in guarantor-based and branch-based lending. Home collected credit is not as strong.
The loan book was £310.3m at the end of 2018 and the interims will provide news of the growth and should indicate where the growth is coming from.
Management has promised a growing dividend and investors will seek reassurance that this is still the case after the Provident disappointment. Last year’s total dividend was 2.6p a share and this could be increased to more than 3p a share. That is slower than earnings growth and the dividend cover could rise from 1.4 to around 1.8. The dividend cover may be edged up further.
Non-Standard Finance is yet another company where Woodford Investment Management has a large stake. The stake was reduced from 25% to 23.9% early in July, but it is still a big overhang, particularly as the management of some funds has changed or could be changed.
This will continue to have a dampening effect on the share price. At 33.5p a share, the forecast yield could be approaching 9% so that might be enough to get whoever the fund manager is to hang on to the shares for the time being.
There has been share buying by Non-Standard Finance directors.
Full year pre-tax profit could rise from £14.8m to £21.8m. That means the shares are trading on six times prospective earnings.
The current rating depends on Non-Standard Finance achieving around 50% earnings growth this year. That is a tough target.
The yield is attractive, but it is difficult to see what will spark any upturn in the shore price in the short-term.