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PCF Group Plc: THE INVESTMENT CASE

PCF Group expects 'profitable and sustainable' growth in 2018

PCF has had a strong start to the year with growth in new business and the lending portfolio
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INVESTMENT OVERVIEW: PCF The Big Picture
PCF is on track to achieve its medium-term targets

PCF Group Plc (LON:PCF) is confident of delivering profitable and sustainable growth this year after reporting robust 2017 results and successfully launching its banking operations.

The financial services firm reported a 25% increase in underlying pre-tax profit to £5mln in the year to September 30, 2017, and rewarded shareholders with a generous 90% hike in the final dividend to 0.19p.

The net asset value per share rose to 18.2p from 15.1p the previous year.

The lending portfolio grew by 20% to £146mln and the company achieved a record low impairment charge rate of 0.5%, down from 1.0% a year ago.

“These strong results are underpinned by excellent organic portfolio growth and a record low impairment rate,” said chairman Tim Franklin.

“The quality of our portfolio and the operational platform we have built provides the ideal foundation to deliver on a strategy of accelerated growth through expansion within our existing lending markets and asset diversification through acquisition.”

A strong start to 2018

In a trading update in early March, the company said trading in the first five months of the new financial year has been strong and in line with expectations. 

PCF's chief executive Scott Maybury said that “new business originations in the five-month period to 28 February 2018 were 93% ahead of the comparative period last year at £54.5mln (2017: £28.2mln).”

“The lending portfolio has grown to approximately £172mln compared to £127mln at this time last year," he added.

Banking operations flourish

Since launching the PCF Bank last July, the lender has been awarded ‘ Best New Provider’ by independent savings specialist, Savings Champion.

"Following our success in achieving the Savings Champion Award for 2018 Best New Provider, we have seen retail deposits increase to £81mln at 28 February 2018," Maybury said in the March trading update. 

The bank has also reduced the cost of funding and increased PCF's ability to access a greater part of the prime lending sector.

PCF said the banking operations will help increase its lending portfolio significantly. It is targeting portfolio sizes of £350mln in 2020 and £750mln in 2022.

"Our first full year as a bank has commenced well," Maybury said.

"We have made encouraging progress against ambitious targets and our focus on expanding our addressable lending market with a proven product range will underpin our continued operational success and deliver increasing profitability."

The bank offers retail savings products through two divisions – consumer finance and business finance.

The consumer finance arm provides loans for motor vehicles to consumers while the business unit provides small and medium-sized enterprises with finance for vehicles, plant and equipment.

PCF resilient against slowdown in car market                         

The company has noted that the motor loan market faces possible structural changes with recent data from the Society of Motor Manufacturers and Traders showing a slowdown in new car sales.

PCF has plans to restore growth in business lending within the consumer finance division and expects successes in 2018 as it uses its cheaper cost of funds to compete on a level playing field in the prime lending market.

This requires tweaking the group's information technology platform with the changes expected to go live in the first calendar quarter of 2018.

Management positive on outlook 

“Our medium-term targets for the group remain unchanged at 12.5% return on equity and a lending portfolio of £350mln by September 2020, while asset diversification remains a goal and will follow in due course," Maybury said. 

Chairman Franklin said the company has the capital strength to withstand any financial shocks and deliver on its medium-term growth plans. The company's common equity tier 1 ratio - a measure of capital strength- stood at 26.3% at the end of last year.

“While the outlook for the wider UK economy remains uncertain as the government negotiates Britain's exit from the European Union, we at PCF remain confident of further progress in the coming year, as we deliver on our strategy of profitable and sustainable growth,” Franklin said.

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