Non-Standard Finance looks to stand out
Non-Standard Finance (NSF) listed on the main market of the London Stock Exchange as a cash shell in 2015 raising £103m from a broad range of institutional investors including INVESCO, Woodford and Marathon. Having ran Provident
Financial (PFG) for 23 years (six years as CEO and 17 as chairman), John van Kuffeler (CEO) saw an opportunity to build another, well-capitalised group focused on serving the 10m to 12m UK consumers that are either unable or unwilling to borrow from high street banks.
Unlike many other lenders, when lending direct, NSF aims to meet their customers faceto-face, thereby establishing a personal relationship with them but also helping to reduce the rate of impairment on loans issued.
Having completed three acquisitions since IPO, NSF now has 175,000 customers, over 130 locations across the UK and leading positions in three core segments of the UK’s non-standard finance market: branch-based lending, guarantor loans and home credit. All of the group’s businesses are fully authorised by the Financial Conduct Authority.
Branch-based lending is the group’s largest division, representing two thirds of Group operating profit before central costs in the first six months of 2018. Everyday Loans is the UK market leader, providing unsecured loans of between £1,000 and £15,000 to UK customers via its 64 branches, up from 44 branches a year earlier.
After applying online or by phone, applicants that pass an initial screening process are asked to attend their local branch for an in-depth interview when the branch completes a formal credit assessment face-to-face.
Having processed over 1m applications in 2017, the business made just over 30,000 loans in 2017 and grew its loan book by 21%. In the first six months of 2018 annualised loan book growth had accelerated to 28% but this was not at the expense of credit quality: the rate of impairment fell to 19% of revenue (2017: 23%) and operating profit increased by 22%.
Whilst an expensive model to operate when compared with pure online lenders, the face-to-face contact with customers is a key factor in driving profitable growth by keeping impairment rates low.
In guarantor loans, NSF is now the UK’s second largest operator with over 21,000 active customers at the end of June 2018 and a loan book
INTRODUCING… NON-STANDARD FINANCE A collection of businesses which offer credit to the around 10m UK adults not served by mainstream financial services companies.
of £63m, up 56% from a year earlier. Customers are typically a younger person, earning between £24,000 and £30,000 but with a limited or poor credit score. Loans are for amounts ranging from £1,000 to £10,000 and typically for a period of between three to four years.
The presence of a guarantor means that they are able to borrow at a much lower rate of interest than were they to borrow on their own and allows them to get on the credit ladder so they can start to rebuild a credit history for themselves.
This rapidly growing segment has been in investors’ spotlight recently following the highly successful IPO of Amigo
(AMGO), the market leader, in July 2018. NSF’s business is growing at a similar rate to Amigo and is starting to realise additional scale benefits that are helping to increase profits and returns.
In home credit, NSF is the number three player with just under 100,000 customers and a loan book of £38m at the end of June 2018. Having benefited from a major restructuring at Provident Financial, the business has grown significantly over the past 18 months – the loan book was up 53%, driving both revenue and profit growth.
RECENT RESULTS AND OUTLOOK
Overall, the latest results for the six months to 30 June 2018 showed that normalised revenue had increased by 51% year on year and operating profit was up by 79%. Earnings per share (EPS) was up 7%, due to higher funding costs associated with its latest acquisition that was completed in August 2017.
In recognition of the board’s confidence in the second half, it has declared a 20% increase in the half year dividend per share (DPS) to 0.6p. Directors have been buying shares since the half year results on 2 August 2018.
The group has £260m of long-term debt funding already in place and is in the final stages of increasing this to £330m thereby underpinning its growth plans into 2020.
House broker Shore Capital is expecting a strong second half in 2018 with full year normalised EPS of 4.1p and DPS of 2.5p rising to 6.9p and 4.2p respectively in 2019.