Pcf Share Discussion Threads

[cc2014] 07/6/2022 09:42:22

Dandi - Post 4028

"It might help if you could give an idea of what you consider a fair current price and how you arrive at it please? Where I am coming from is to ask whether or not 5p is a reasonable number? Are Somers paying sufficient?"

I may write a longer reponse another time but the sun is out today for the first time in what seems like ages so shares seem less of a priority.

Is 5p fair? Put simply we can't say because we haven't seen sight of the interims. Somers no doubt will have seen sight of the monthly management accounts.

What we do know is that Somers are tipping in money today through the Sandbox rather than doing it all in one process with the OO. My guess is this is because they need to prop up the capital ratios for the end of the quarter and it can't wait. I could be wrong but that's my guess. On this basis PCF's losses must be not insigificant. Unfortunately I can't work out the number precisely because the Pillar3 document does not reveal the exact amount of capital required by the PRA.

What I'm left with though is that if PCF continue running losses of say £7m a year for 2022, 2023 and 2024 then PCF is worth a penny or two, because there will be more diluting capital raises to come to keep the regulatory capital in order.

If it's say £7m in 2022, £5m in 2023, £3m in 2024 I think it depends how well this OO is supported. My guess is that it won't be well supported. Too many red flags for the institutions plus PCF is no so small it won't be worth the analysts time. If PCF get £5m including Somers I'd say the shares are worth 3p. If they get £10m say 4p.

If I could be persuaded that the numbers look like £7m in 2022, £2m loss in 2023 and a £1m profit in 2024, I'd say 5p is fair enough.


I could flex the numbers anywhere from there. We need to see the interims. I can't understand what's holding them up. The finals have been published. Push the button on the computer to update the year end and then run the half year. All the accounting treatments were no doubt agreed with the auditors weeks or months ago and the interims don't require auditing. If they want the OO done by the end of the month and want to give two or three weeks for investors to apply to maximise the takeup then I'd expect the interims by the end of the week.

[dandigirl] 07/6/2022 09:36:34

Looks like around 1 new for 5 current then.

[graham1ty] 07/6/2022 07:36:33

Under what authority have these shares been issued ? Surely a non preemptive placing needs shareholder approval ? It is also Class 4 ( with a related party) that should also require an EGM ? The announcement of a few days ago says merely that the independent non execs think it is best for the Company.

The same non Execs ( roughly) as have presided over this car crash…..

Good that a third party enters the fray. However, PCF could not pay cash obviously.So any merger would have to be for shares, and the other party would have to accept grillionsnof shares in a loss making combination. And massive dilution for existing shareholders.

The PCF farce continues

[solarno lopez] 07/6/2022 07:06:53

A much more appropriate deal announced with PCF being the lead vehicle guaranteeing its listing

[carcosa] 07/6/2022 04:24:29

"...Holding shares in a standalone loss-making lender is an unappealing prospect, too, as the UK cost of living crisis impacts delinquency rates. In the circumstances, I downgrade my advice from hold to sell."

[hopespr1ngseternal] 06/6/2022 18:10:43

As to BVPS or NAV please note that the derecognition of deferred tax is a significant number which will be written back once PCF has secured its future as a going concern.

[hopespr1ngseternal] 06/6/2022 18:02:05

Dandi: 5p represents a significant discount to the suspension price or whatever other metric you use to calculate an appropriate per share price for the business - which is why minority shareholders are being given the right to subscribe on the same terms to avoid dilution and are being given catch up rights in the event of an offer from Castle. The Open Offer is broadly equivalent to a discounted rights issue except that rights are not transferable.

[dandigirl] 06/6/2022 17:42:06

P.S. I have looked through PCF's recent releases and they don't appear to give a NAV PS figure. I guess because it is so awful. I had hoped that trading would resume in the 10 to 15p range but the costs have taken and are taking a heavy toll.

[dandigirl] 06/6/2022 17:36:04

hopes: I must stop this for here I am agreeing with you again.

Consequently CC, I, too, beg to differ. NAV PS is one of the first numbers I look for.

To use your example LLOY; it has had a figure mostly between 50 and 60p these past several years. Failure to grow this figure was one of Horta-Osario's many failures. Indeed, I seem to remember it fell for three years at a time when he was supposed to be growing the business. At the same time LLOY share price has not risen above the NAVPS figure for years.

I have just checked and the year end figure is 57.5p. Current share price 46p.

No account is being taken of the future profitability [or otherwise] of LLOY even now.

I think your measures while having merit are old fashioned. Their days are long gone as are the days when banks could lend multiples of capital using wholesale funding. Similarly, it seems the days of 50% cost/income ratios again are a few years away as the costs of regulation are now very significant. Aim is for 2026 for LLOY.

STAN has a NAV PS above £12. share price £6.50 ish. Cost/income 76% but aiming for 60% next year.

It might help if you could give an idea of what you consider a fair current price and how you arrive at it please? Where I am coming from is to ask whether or not 5p is a reasonable number? Are Somers paying sufficient?

Just to add, my reading of the RNS is that the £2.7m has been injected as of today.

Lastly, PCF has to provide projections for the business as part of the OO. I happen to think PCF's markets are robust. We can take a view of the future when asked but currently PCF's peers are doing okay.

[hopespr1ngseternal] 06/6/2022 15:59:39

I suspect if you ask Garry he would say that he is right sizing the cost base which is why they have to grow the business.

[cc2014] 06/6/2022 15:41:43

With regard to the net asset value thing let's take a look at Lloyds.
It's net asset value is £53.2b but it's market cap is £32b.
It made a profit last year of £6.9b and pays a dividend.

Sure the net assets are important but it isn't a good metric as we can see with Lloyds the net assets are £53.2b but this does not provides a floor to the share price.


In relation to 2020 the impairment was high but I see this as due to PCF publishing profits which weren't there from previous periods (and thus the attempts to consider clawing back directors bonus payments). My view of course and others are welcome to see it differently.

With regard to 2021, the abnormally high cost/income ratio is true, but given the remedial costs are going to be the same in 2022 and 2021 and the loss is going to be significantly higher this I think the abnormally high cost/income ratio is going to be significantly worse in 2022. An uber abnormal high cost/income ratio if you like and this despite Garry informing us that they are removing cost by making the approval process for loans less dependent on people. At what point is the abnormal ratio more like business as usual? because the solution seems to be to grow the business to get economies of scale rather than right size the cost base to the current loan book size. It's important to note of course that in time the remedial costs will fall away. But will the remedial costs just be replaced with other costs? I read in the annual report there is no workforce director. I was a bit shocked given all the issues around culture and health and happyness of the workforce.


Somers are between a rock and a hard place. Without the addition funding, lending is constrained and PCF can't get the economies of scale it needs to get out of this mess.

[hopespr1ngseternal] 06/6/2022 15:30:13

I wonder how much a purchaser would pay for the PCF loan portfolio. Any ideas?

[hopespr1ngseternal] 06/6/2022 14:41:02

I disagree with cc on a number of points. First tangible book value is an important metric in valuing banks. Secondly I do not think one can draw any very firm conclusion about the viability of the business from 2020 where the loss was wholly attributable to a 14.4m one off impairment charge or from 2021 where there was an adjusted pretax profit despite an abnormally high cost/income ratio. We have to wait for 2022 to have any feel for underlying profitability going forward. Finally CC’s last sentence is distinctly odd. Somers are much more likely to be investing because the business is viable than because it is not.

[cc2014] 06/6/2022 12:37:46

#4022.

Sad to say as an ex-shareholder and someone who would like to see PCF do well, I'm struggling over the future.

We now have reported losses in 2020 & 2021 and losses in 2022 are going to be significantly higher than 2021.

If I'm brutal I have to question whether if the business can't make money over a three year period in which we've seen the value of the security behind those assets be the most bullish in memory (second hand car prices rising so you can sell a car for more than you bought it), then is there a viable business at all. Of course others make money from lending of this type so there's no reason PCF can't but PCF can't seem to.
It's my view we are at the top of the bubble with asset prices and going forward PCF's impairments are going to have to deal with falling assets prices as security.

I also worry about their NIM. They've borrowed £60m from the BOE at some crazy low interest rate. I don't know what it is but my guess is lower than 0.5%, perhaps as low as 0.1% and that will have to be repaid in due course but definitely by 4 years after the loan was taken out. If they have to replace that with say borrowing at 2.5% from savers, that isn't going to help. A rise in the base rate to say 2.5% at the BOE isn't going to help either as they have to pass that on to borrowers and will this affect impairments.

If you take a very broad view that PCF have requested £4m from Somers for regulatory capital purposes but their losses are significantly higher than that reported in 2021, how long is the injection of cash going to last? The loss in 2021 is £3.1m and it's going to be significantly higher. Let's guess. Say £5-10m. And probably followed by a loss in the next year.

The issue is that if Somers don't tip in the £4m capital, PCF loses money year after year as it doesn't have critical mass and then it's a vicious circle as their lending is constrained by shrinking regulatory capital. If Somers do tip the capital in, it's roll the dice time and take a view of how much you believe in the management team, how much of the remediation costs go away over time and your view of the resilience of borrowers to keep paying in a higher inflationary and interest rate environment.

Let's see what the interims say which I assume will have to be published before the capital raise at the end of June. If we are looking at a full year loss of say £5m that's bad but kind of not too bad. I can see a path back to profitabily over 2 years. If we are looking at a full year loss of £10m things look bleak indeed. The thing is if the loss were only £5m for this year and then say £2m for next year I don't think Somers would be tipping the £4m in.

[dandigirl] 06/6/2022 11:53:37

Thank you, cc. Very interesting.

What figures did you arrive at as a fair current price per share and in say the next year please?

[cc2014] 06/6/2022 09:45:01

~4017

The market does not value banks on the basis of their net assets. It values banks on the basis of their future profit streams.

Very broadly net assets provide the regulatory capital which enables the profit streams and without suitable regulatory capital as we have now banks lending is constrained.


On another note if you consider the current published capital ratios and the requirement for more capital and take a guess at the new larger loan book you can broadly get some insight into PCF's ongoing losses.

[dandigirl] 06/6/2022 08:31:20

Good morning hopes: Thought Somers are okay at 73% or thereabouts. Of course this likely would reduce below 70 after the OO. Thought 80 was the magic number?

Looks like Castle approached PCF/Somers who put out the RNS “without the approval of Castle”.

[hopespr1ngseternal] 05/6/2022 22:28:25

Agreed Dandi with one reservation. Unless there is a reverse takeover (which does not appear to be what is being proposed) difficult to see how the listing can be maintained as PCF Group PLC will be a wholly owned subsidiary of an unlisted parent company.

[dandigirl] 05/6/2022 19:28:54

Golly gosh. I tune out for a couple of days to enjoy the Jubilee and come back to read doom and gloom!

Allow me to try to lift the mood for while I agree this may be an embarrassment for SOMERS [and the rest of us] and maybe a nuisance too, both SOMERS and CASTLE [of the Flowers Group] will be relishing this situation in a funny sort of way.

These sorts of deals are their stock in trade. It’s in their DNA. The amounts are not significant for either group but significant enough to be more than a nuisance to be written-off by Somers. They and Castle will be loving it. This is clearly opportunistic by Castle but Somers are in the driving seat and need not do any deal if it is not to their advantage – and I don’t see how it can be. What is good for Somers will, hopefully, be good for the minority shareholders. We can but wait and see.

I am still of the view that the listing is one of Castle’s motivations and, hence, we will not be looking at an unquoted investment whatever happens.

I think we can be sure of one thing though; that the current Board will play it by the book. I expect full transparency as Moore, in particular, has a reputation to protect.

I have written that I, too, wonder if all this drama was really necessary but the past is the past. Remediation has, however, cost a lot of money, will continue to cost a lot of money for at least another year and left PCF with significantly greater overhead on-going. It will be much harder to get a decent return on equity. Just one comment, though. I do think the Board should think carefully about the costs of legal action to attempt recoveries and whether the action and costs can be justified on any basis.

But to current matters, in calculating the NAVPS figure of around 10p, I used the 306m figure. Subscribing at 5p appears rather a good deal for Somers and allows for some further expected losses. I don’t believe that Somers will want to get out at any price. Fair do’s – they have supported PCF all the time we have been shareholders including, I seem to remember, converting high interest prefs to ords to facilitate the bank listing.

My view is pretty much in line with hopes posts #4005 and #4017 including the Board, especially Stran and Richardson, demonstrating support by investing significantly. Morgan with 500,000 shares, Brown with 200,000 and Titmuss with 50,000 will already be nursing losses like the rest of us; they should continue to show support by participating in whatever transpires. Like hopes, I, too, would not wish to sell at a low price but in reality the minority shareholders would not get a say with Somers at over 73%. However, I don’t think that a deal with Castle will be done. Why would Somers off-load now at a silly price?

Anyway, for those like hippo* who want to depart the scene, they can now do so. For our part, we will be hanging around awhile longer to see what transpires. I believe there is more upside than downside but it will take time. Interesting times.

*hippo: bet you can’t resist peaking in here for a looksee from time to time.

[hopespr1ngseternal] 05/6/2022 13:01:24

Topvest: why express a view on a takeover that may not happen by a company about which we know next to nothing offering an unknown quantity of its own shares?. The decision whether to support the OO in these circumstances will be a decision to invest in the combined group not in PCF. And I don’t agree that there will be no premium. Current PCf stock price is driven by technical factors and is not a useful guide to the value of the bank which the Board assesses at no less than 32m pounds. I doubt Somers will sell for 6p a share unless they want out. at any price. I will tcerainky not accept 6p in respect of my own shares

[topvest] 05/6/2022 09:21:20

Looks better to exit whilst you can in my view, for what its worth. The upside looks constrained versus the downside. Putting more money in looks highly questionable. Castle won't be offering a premium - why would they?

[hopespr1ngseternal] 04/6/2022 22:39:27

No, Graham. The bottom line has not yet been written.

[hopespr1ngseternal] 04/6/2022 22:37:03

No, Graham. The bottom line has not yet been written.

[graham1ty] 04/6/2022 21:47:14

The accounts had to be qualified, as last years were qualified. So there was no “starting point” that this year’s auditors could measure against. Therefore, they had to be qualified.

We, Somers, shareholders, have lost about 90% of our money ( from 45p high)

That is the bottom line