|RNS Number : 6194C
18 April 2017
Lombard Odier Asset Management (Europe) Limited increased holding to 18.97|
|Commentary from the CEO on the recent acquisition;
|I agree it looks cheap and I have a few although I'm always nervous of growth through acquisition especially in a sector like this.Still,that's their stated policy so you pays your money...
plus it's pretty illiquid [at least whenever i've tried to deal]so I suspect it would be very hard to get out of in the event that the facts start to change.
Management is pretty new also.
I continue to watch with interest.|
|Well your post brought a few buyers in GHF so you may not have the tread all to yourself for much longer :-)|
Feels like my own private investment thread ;-)
I last posted a month ago following the earning enhancing iLoans acquisition. Cenkos upgraded earnings by (+6%) for 17/18, raising adj diluted EPS to 7.5p from 7.0p.
OPM aren't let the grass grow under their feet & announced a further acquisition today of Bell Finance which adds scale to their Asset Finance Division. Their broker has consequently upgraded the upgraded earning figures by a further (+5%)!!!
1pm will hope to reduce Bell's existing funding costs through delivering economies of scale through the elimination of duplicate costs.
Cenkos indicate that they acquired Bell on a multiple of 6.5x PBT & that it will be earnings accretive in 17/18. The new FY begins in June.
In FY18, recognition of a full year of Bell leads to a 5.3% increase in adj EPS to 7.9p p/s (was 7.5p p/s), with a dividend of 1.02p p/s (was 0.97p) now expected....Excellent value on book and earnings basis - 1pm trades on a FY18E PER of 7.4x and a p/book multiple of 1.1x. This represents exceptional value relative to alternative finance peers; such as closest peer P&CF (FY18E PER 13.7x, 1.9x book).
Share price 59.5p (mid) & the latest upgrade places the shares on a prospective PER of 7.5 for 2017/18 which almost prices them at c.45% discount to peer PCF (Private & Commercial Finance Group) on both an earnings & also price to book basis.
Look great value to me.
Another lovely quiet thread. Share price +14% in the last few days following the iLoans acquisition...and zero posts!
Looks like a decent acquisition to me, with Cenkos upgrading forecasts & indicating that it will be +6% earnings enhancing in 17/18 - year end May, so negligible impact in remaining couple of months of the current financial year.
Update from Cenkos indicates,
"...iLoans brokers second charge (45%), commercial (40%) and bridging (15%) property loans to a panel of funders for commission income. Deals are originated from a network of introducers to small businesses and consumers seeking credit. By acquiring, 1pm is seeking to self-fund future bridging loans which offer short-term, low risk, and highly profitable rewards, while continuing to broke-on remaining business for commission. The deal also offers cross-selling opportunities with brokers to the existing 1pm business."
"...iLoans’ business will be combined with existing Onepm Finance business loans (currently a £14m book) to form the Loans division. The division represents shorter term lending (3-12m) which will be backed by the more flexible SLNP in addition to existing block funding arrangements."
The initial consideration represents a multiple of 3.0x EBITDA. iLoans received commission income of £1.5m (from 250 transactions) in the year ending 31 Jan 2017, which produced EBITDA of £0.4m and PBT of £0.3m.
Cenkos have upgraded 17/18 forecasts for earnings upgraded by +6.0% which raises adj diluted EPS from 7.0p to 7.5p & places shares on a PER of 8.2 (based on mid-price of 62p).
They retain 5.9p adj diluted EPS for the current year which ends shortly (31.05.2017).
Cenkos conclude that OPM offers,
"...Excellent value on book and earnings basis - 1pm trades on a 17/18 PER of 7.8x and a p/book multiple of 1.3x. This represents exceptional value relative to alternative finance peers; such as closest peer P&CF (FY18E PER 13.6x, 1.8x book)."
|Just been tipped in the IC by Simon Thompson
|Jamielein / Spig69 - Thanks for your comments.
As an OPM investor pre-consolidation I made the decision to come back on board a week or so ago when a lump of stock became available at 55p.
The interims contained a few issues which you've touched on, but as Academy and BBFL have ramped up the self-funding aspect of deals, this has sacrificed the up-front broker commissions, reducing margins & immediate earnings.
So for me it's was important to ascertain if they will deliver as per full year estimates after lukewarm interims.
Bad debt write-offs have increased to £0.25m from low base of £0.15m. An area to watch but again I would expect this to rise given the increase in lending.
The future provision also increased to £1.2m representing 1.64% of total receivables versus £0.92m in the previous year which represented 1.57% of total receivables. Again, % consistent with the previous years provision.
"Going forward, we expect 1pm’s impairment rates to continue to impress however, it is expected some addition to impairment provision will be made given current economic uncertainty. It is expected that the impairment provision will be maintained at c1.5% of total receivables to factor in additional prudence."
For the current year to May 2017 Cenkos maintain £16.5 turnover / £4.3m PBT / 5.8p Adj EPS (PER 10). So as mentioned, stalling EPS growth although +22% EPS growth factored in for 2017/18 with 7.1p EPS forecast.
IMHO the current price offers decent re-entry point while I understand your reticence given the static earnings progression.
Finally, Cenkos note,
"On an earnings basis, 1pm lags the peer group average P/E of 12.7x earnings and in particular its closest peer, P&CF (16.9x). Should the peers average be applied to 1pm earning’s, a market capitalisation of £43.2m equivalent to a price of equivalent to share price of 79.2p per share (34% upside)."
Best wishes to you both.
|Jamielein, I have also held for many years. Your comments regarding the bad debts and provisions worry me too. Why they have bought so many companies diluting shareholders in the process without increasing EPS is a mystery. The EPS makes very poor reading. I sold a lot last week and I have been here for more than 6 years. Anyone can increase turnover but at what cost? And a placing around 60p to fund these purchases has not produced much at all. At the end, it is all about EPS and share growth. 1PM should have stuck with the original business - that seems to be performing well. I am another disappointed investor - these were in my SIPP and I reluctantly sold as there has been no movement in share price for a few years now.|
|I've held these shares for several years but I reluctantly decided to sell my remaining holding on Friday. The stalling in EPS growth and the chart were two of the main factors in my decision.
They would've been better sticking to their original organic growth rather than making acquisitions that diluted shareholders.
Bad debt write-offs have increased (albeit from a very low base) - I don't understand enough to know whether there's a risk of a further increase in the future, but write-offs can't go down much from here since they're already very low.
The future provisons have also increased.
Based on the chart, I think the market might have lost confidence in OPM, which cemented my decision to sell.|
|Well, here we are again at the 3 year low, as someone who has been in for about 2 years and supported the rights issue I would have to confess to being seriously disappointed.
They have pretty much delivered to target so I am at a bit of a loss to understand what is going on.
I guess they need to dramatically ramp up the divi to generate some interest as rising profits are clearly not doing the job.|
|gdjs100 thanks, yes, you're right no exceptionals. (Sorry it was the layout of the words that confused.)
It seems they're totally in line with broker expectations. As you say "a slow burner".|
|There weren't any exceptionals this time round - where do you see that?|
|Does anyone know what the exceptional item of c£2m was? I can't see reference to it.|
|Thanks David and Shanklin, just listened to the Mello presentation again which confirms their intention was to do exactly this. Slow burner this one!|
FYI, I understand Bradgate used to broke on the vast majority of their business and take the risk on for the remainder whereas, under OPM, there has been a complete reversal of this approach. Whereas the profit recognition on the broked on business is instant, with the retained business it is spread over the duration of the loan.|
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|I am not panicking here but equally the market clearly has absolutely no interest in them and they are clearly not good at drumming up interest given that the share price has only been lower than the current level for about 4 months over the last 3 years.
Sometimes you just have to accept that the market will not place a fair value on a stock and as someone who has been invested here for over a 1.5 years and is sitting on a loss I am not sure that I am willing to wait even longer.|
|I think they have taken some up front costs in delivering the broking for themselves and then profit spread over a number of years so these figures will improve significantly from here. I am sure H2 will be stronger so eps could reach 7p this year not 2018. Generally OPM under promise and over deliver|
|Well, having waited so long I am not sure what to do now.
The company trades on a single digit p/e but clearly the market was disappointed with the results.
I guess the question is will the additional costs wash through into higher profitability in the second half. They are not guiding that that will be the case.
Sadly I am tempted to sell now.|
|From REFS, the Cenkos forecast of 06-Sep-16 is:
Year Pretax EPS DPS
2017 £4.3m 6.0p 0.70p
2018 £5.3m 7.2p 1.06p
If that is accurate, I presume their 2017 forecast will need to be increased.|
|There was some mention previously of the acquired businesses brokering on a lower proportion of their business as this would apparently increase the lifetime profitability associated with these loans. It would be interesting to know whether this has happened as it would reduce current period profitability but help profitability in future periods.|
|You need to view this in the context of historical operating margins, as last year was high relative to previous years (and resulted in a huge jump in EPS). We are seeing this unwind in the comparatives this year.Operating margins:2012 H1 19.72012 H2 20.12013 H1 23.92013 H2 26.92014 H1 31.82014 H2 33.32015 H1 30.22015 H2 29.12016 H1 34.12016 H2 27.42017 H1 26.0The £100k additional bad debts will have accounted for a margin drop of 1.3% this half.Be good to get some more colour on recent margins though - are the acquisitions lower margin than the original 1pm business?|