Orchard Funding Share Discussion Threads

[34adsaddsa] 02/2/2024 10:39

If the consumer has been making payments to Orchard then surely the consumer would expect any repayment to come from Orchard.

Orchard would then in turn have to pursue repayment from the insurance company or dealer.

Do you disagree?

[topvest] 02/2/2024 10:37

The consumer. "Over 98% of customer receivables are subject to recourse to the introducing partner in the event of default by the borrower."

[34adsaddsa] 02/2/2024 10:14

Who are Orchard getting their money back from: a company or directly from the consumer?

[topvest] 02/2/2024 10:05

I very much suspect that the party that pays the commission will be liable for any mis-selling unless they also go for insurance premium funding as well. I believe that this is the insurance company. They get paid by Orchard and pay out a commission to the dealer on day 1. Orchard then get their money back with interest over a year. It is pretty clear that the insurance company is getting the outsized return which allows them to pay a 50% commission. That's why they are stopping it. No mainstream insurers are involved in GAP insurance which is also a red flag.

[playful] 02/2/2024 09:59

A good overview….

Speaking to the risks, the group as explained specialises in insurance premium funding, which in the UK is dominated in a duopoly, with Orchard Funding a distant 3rd player. These top players are Close Premium Finance and Premium Credit, which according to various online resources, control over 90% of the market. In the article linked, Bexhill describes competition in the market, with an interesting barrier to entry being broker commissions paid in advance for exclusive use along with multi-billion dollar spend on integrating themselves into the broker network to make the choice seamless. Bexhill goes on to propose the potential for price fixing with so few competitors. For some context, in 2022 Premium Credit generating a 54.7% pre-tax operating margin, whereas Orchard Funding generated a 33% operating margin. Pressure from the regulator (also here) could bring this disparity more in line, and assist Orchard in gaining more market share, along with a better margin. In my view, the odds are reasonable that Orchard could benefit from a future alleviation in competition, but there is also substantial risk of being dominated by incumbents. In the shorter term, funding costs are likely to put pressure on the group’s margin, but with the short-term nature of their loans, should see a relatively quick response in their lending rates.

[florence141414] 02/2/2024 09:54

If I was 100% certain that they were not on the hook for the legal action and the only risk is loss of business then I’d be buying as much as I could at these prices.

Even if they had to shut everything down, pay pack loan facilities and incur redundancy costs etc. presumably there would still be at least 15m of shareholder funds remaining.

Who knows what would happen then. Returned to shareholders? Bought out by Ravi for 10m?

Unfortunately I don’t think anyone knows for sure if Orchard have any liability until it is tested in a legal setting. Including Ravi.

[topvest] 02/2/2024 09:52

This summarises the position well -
hxxps://cardealermagazine.co.uk/publish/fca-effectively-banning-car-dealers-from-selling-gap-insurance-from-february/296699

It is consistent with what I experienced. I purchased GAP insurance on an £80k car online for about £200. BMW wanted something like £400-500 if I remember correctly. The issue again is like motor finance commissions. There is nothing wrong with the product itself. The issue is the enormous commission that the dealer gets for selling an overpriced product which means that they are knowingly selling an over-priced product.

[topvest] 02/2/2024 09:41

A couple of thoughts. The revenue will presumably only disappear once the policies expire and so the loss of income is not immediate. Its the insurance company that sells the GAP insurance so they are the ones that are potentially on the hook for regulatory action. Most reputable insurance companies don't sell it - I know as I have shopped around for GAP insurance on an expensive car in 2023.
The issue appears to be that £10m+ of the lending book is running off quickly and can't be replaced so this will offset any growth elsewhere in the business. Share price hammered today, but seems a tad overdone.

I see that the CBG share price is still getting hammered - they are into this and motor finance DCRs. There has also been talk of regulatory action over insurance premium finance in general (i.e. why should you pay more for monthly insurance)? I think the FCA are losing the plot to be honest. The insurance business has worked this way for hundreds of years - i.e. you pay the premium up front. If you can't afford to you should pay more. That's how insurance companies earn a return.

[davidosh] 02/2/2024 09:33

Presumably the commission seeking dealer says take out GAP insurance with a provider of such and when the punter says they cannot afford it...Orchard are suggested as an instalment option.

I do not think Orchard have any risk of legal action but clearly losing business if this was 20% of loan book.

[cockerhoop] 02/2/2024 09:08

From FCA report in Sept 23 - it is a pretty outrageous product that consumers shouldn't be bounced into.


'According to FCA data, for GAP insurance only 6% of the amount customers pay in premiums is paid out in claims. The FCA has seen examples of some firms paying out up to 70% of the value of insurance premiums in commission to parties in the distribution chain, such as motor dealerships.'

[florence141414] 02/2/2024 09:05

Call me crazy but I might be convincing myself to buy back in to orchard.

They have an 18m net loan book. 5m market cap.

I don’t believe they are the ones that sold the car insurance to the end user. They just lend the money to the insurer/car dealer who makes the agreement with their customers.

The way Amigo/Morses went broke was because the regulations came with a slew of justified legal claims the payments for which overwhelmed them.

If orchard are not on the hook for the legal claims then yes their business is screwed going forward but their assets should be safe from the claimants.

There is obviously more risk in that the next letter from the FCA could make everyone withdraw their regular insurance cost spreading products which would wipeout just about all of Orchard’s business

The key for me is who is on the hook when the claims come around

[davidosh] 02/2/2024 08:59

97peter said... Things will be different in 2024, spoke to Ravi about IR and communications with PI’s. Enjoy the rest of the year with Orch, get in now while it’s at 33p, as I honestly believe as a medium to long term investment and income return and growth there are few better shares and company!! Hargreaves and Interactive think so as have quite a few shares!!

I am not sure what your motives are but were you aware of this risk to 20% of the business?

[tiswas] 02/2/2024 08:57

Anyone have access to the Liberum note?

[konradpuss] 02/2/2024 08:50

Whoops! The discount to NAV just got bigger.

Now where is Peter when you need him to 'hoover up' these shares?

[playful] 02/2/2024 08:46

That made me smile 😊

[konradpuss] 02/2/2024 08:44

David, it was/is at a stonking discount to NAV. This allows, in my humble, for the bad news.

[davidosh] 02/2/2024 08:31

Can anyone direct me to where the company highlighted this FCA investigation as a specific risk to 20% of their business?

Is there not a knock on risk that banks will pull their funding?

Now we know why the share price has been so weak..

My investment here based on growth with a high yield has become a declining business model with a 60% capital loss...ouch !

[playful] 02/2/2024 07:54

Seems they want the product out of the control of the car dealership but have no intension to ban the product.

[cwa1] 02/2/2024 07:08

Ugly...



Trading Update



Orchard Funding Group PLC ("Orchard", the "Group" or "Company"), the finance group which specialises in insurance premium finance and the professions funding market, provides notification that following the conclusions of a recent FCA review, a number of insurers are withdrawing products from the guaranteed asset protection ("GAP") insurance market. GAP insurance is sold as an add-on to motor insurance, covering the difference between a vehicle's purchase price and its current market value.



As over 20% of the Group's assets finance GAP insurance products (as at 31 December 2023, unaudited), the withdrawal of these insurance products is likely to have a material adverse impact on the Company's financial results over the current financial year. The Group will provide further updates as appropriate in due course, as it continues to assess the impact of GAP insurance product withdrawals and works to redeploy these assets.

[97peter] 26/1/2024 18:06

Konradpuss - Were and on what sites, BB’s or elsewhere do you get the inclination that Orchard are short of funds, made 1.6 million profit each year for last 3 years! Or where they could go private or be bought?? Do you know something we don ‘t? Plus are you really worried or only have a small stake and just stirring?

[cwa1] 26/1/2024 10:41

Indeed, in at ii too. Happy days!

[konradpuss] 26/1/2024 10:28

Phew! they are not broke!

[cowie19] 26/1/2024 10:22

Divi in my IG account this morning

[97peter] 26/1/2024 10:01

II - Interactive Investor monies in just now, great broker and great prices on SIPP.