Orchard Funding Share Discussion Threads

[34adsaddsa] 02/2/2024 15:51

The shares are where they are because of Orchard's potential customer redress obligations stretching back years.

Nothing else matters. Profit for this year, price/book etc. are all irrelevant.

[gradodd1] 02/2/2024 15:37

Seems a bit of an overreaction based on the fundamentals...

Last year, Orchard had c. £51m of average interest earning assets. They earned c. £4.9m of net interest income off that (9.5%).

Assume they lose the full 20% of GAP assets. Interest earning assets fall to £41m. Also assume NIM falls to 5% from 9.5%. That gives net interest income of £2.1m.

PBT to NII was c. 45% last year - assume if falls to 40% from some fixed cost absorption on a lower loan book. That gives me £0.82m in PBT.

At the current market cap of £5.5m, that's a price/PBT of 6.7... Orchard has £35m in external loans due last year. Loan assets would still be £41m + £2.5m in cash.

The price as of today implies the business is worse than dead even in a close to worst case scenario (neglecting legal question).

[97peter] 02/2/2024 14:02

Already loading up at 23 and 24p a share massive!!

[konradpuss] 02/2/2024 13:48

Peter, an optimist to the last.

I think I need to contemplate this before 'steaming in'.

After you Peter.

[97peter] 02/2/2024 13:29

Davidosh- Orch will obviously use the 20% stake in GAP and use it elsewhere! A bit of of overreaction! Good time to buy, as can be seen by 60% of shares traded on LSE today are buys!

[cc2014] 02/2/2024 12:41

Thanks I get it. Sometimes I forget everyone but me buys cars on finance.

[34adsaddsa] 02/2/2024 12:34

Where are you imagining the £500 at the beginning of the policy comes from?

[cc2014] 02/2/2024 12:27

I have a different question.

Consider you are providing the gap insurance.
You charge £500 but your average payout is only £100 for claims and £100 to the car vendor.

You get paid the £400 at the beginning of the policy after paying the car vendor so have a huge pile of cash.

So, why is it you need to borrow any money at all whether from Orchard or anyone else?

[topvest] 02/2/2024 12:21

To be fair there is some margin of safety...

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

Tangible net asset value 83p.

[konradpuss] 02/2/2024 12:02

No quite different in my humble opinion.

[spob] 02/2/2024 11:50

safety / margin of safety

semantics

[konradpuss] 02/2/2024 11:47

spob, I have always thought of this share as a quasi bank. Look at what the company can lose. If the punter stops paying the insurance policy is canceled. O.K. I was not expecting a regulatory issue.

By the way property assets can also go down big time. Just look at valuation impairments
on offices recently and retail/shopping centres over the last few years.

By the way safety is different from a margin of safety.

[spob] 02/2/2024 11:38

.
Margin of Safety ?


This company has borrowings and loans.

Basically risky business.


If you want safety, look for campanies with low risk tangible assets.

Liquid assets, Freehold properties and lots of Cash.

[konradpuss] 02/2/2024 11:33

topvest, I still think there is a margin of safety to get your money back if you entered at say 40p ish in the medium term.

[topvest] 02/2/2024 11:28

Anyway, this has been a poor investment for years now. Thankfully a very small position, but it always hurts!

[topvest] 02/2/2024 11:26

There RNS didn't imply there was any regulatory issue, just a lack of business volumes in the lending book.

If there ever is a compensation issue (and I think there may well be) it will be on the commission payments paid by the insurer in my book (i.e. similar to motor finance lenders). When you buy GAP insurance the contract is with the insurer and then includes a finance company. So, the primary company initiating the contract is the insurance company.

[davidosh] 02/2/2024 11:26

I think it is inevitable that ambulance chasing lawyers will be all over this and establishing who they can reclaim all the excessive profiteering from. Hopefully we are only reasonable cost finance providers and not paid or received any commission or caught up in the firing line.
Just defending our position could be costly but hopefully we may gain long term if seen as a reasonable option for those who still want competitively priced gap insurance.

[babbler] 02/2/2024 11:14

The dividend if any is likely to be cancelled now.

[34adsaddsa] 02/2/2024 11:07

I don't have any legal training at all, I could be completely wrong, but if Orchard thought there was no chance they were on the hook for any potential repayments and had a purely financing role then I think they would have hinted at that.

[34adsaddsa] 02/2/2024 11:05

I agree, but the loan isn't just a random personal loan to the consumer. It's linked to the insurance and the loan repayments are the cost of the insurance to the consumer.

Hopefully Orchard could then immediately get any repaid money back from the insurance company/dealer - as long as they have the money - but it gets very messy if that isn't already guaranteed by the contracts.

[spob] 02/2/2024 11:00

.
Anyone still buying this 'No Brainer' ? Lol

[topvest] 02/2/2024 10:57

No I don't think so, but its more complex than motor finance. The only liability really in my mind is for the underlying insurance contract, in this case which was over-priced due to a commission payment to the dealer. When you buy GAP insurance the contract is with the insurance company. You have presumably then taken out a loan to buy the product if you didn't pay the premium upfront. The issue isn't the loan it's the insurance product which is inflated by a 50% commission. The main party that has benfited is the dodgy salesperson in the garage, but this is on the back of the insurance company. The lender just earns their 10% finance charge, I think. It seems to me that motor dealers are having some generous commissions ripped away from them in the future. It explains why they are never interested in you buying cars for cash!

As with motor finance mis-selling, if they ever go for mis-selling here it will be the insurance companies who are to blame as they paid the commission and over inflated the price. The dodgy sales person always seems to come off best...he has spent his bonus!

[benny shares] 02/2/2024 10:53

When does the dividend get paid?

[playful] 02/2/2024 10:41

The FCA clearly require changes to the way insurers price premium finance products and to be honest I think we might have an opportunity here to break up the monopoly as they don’t have any issue with the product.