Turning lastly to funding and the macro environment, PCF are currently only operating with new funding drawn from consumer retail deposits which have proved popular with savers who lent £53m at a blended rate of just over 2.0%. In the near future the Group are planning to extend deposit taking to business banking customers where economic to do so. In the meantime, retail deposits will continue to both pay down wholesale market debt and support new business lending. The Bank of England’s recent increase in base rates has had no impact on the existing portfolio, but future terms will reflect the higher market rates for new business.Full report is available via Capital Network website
Charles Taylor (CTR.LON) is a global provider of professional services to clients across the insurance sector. In addition to providing the traditional services of insurance management, loss adjusting and claims services, it is at the forefront of exciting new developments in “insurtech”. Charles Taylor (CTR.LON) has three main professional services’ segments, which provide a good mix of 1) steady earnings stream from decades old relationships, 2) potential for pick-up in earnings as and when complex loss adjusting activity in the insurance sector “normalises” and management action to improve margins takes effect, and 3) exposure to growth areas through Charles Taylor InsureTech (CTR.LON), its new insurance technology business, and the turn-key management of Lloyd’s syndicates, the development of medical claims and assistance services and the expansion of outsourced service provision. The group being a service company means there are none of the usual material risks associated with a traditional insurance company.
Substantial growth in new business forecasted by management; the current customer portfolio stands at £128m which management expect to grow to £350m in 3 years and to £750m in 5 years across both Consumer and Business Finance divisions. The returns guidance is very positive with ROAA (Return on Average Assets) targeted at 2.5% and ROE (Return on Equity) targeted at 12.5%, with both metrics improving further in the 3-5 year horizon. Combined with the reduction in credit risk as the Group focuses on the Prime and Super-prime markets (low and lowest credit risk), the potential returns look attractive.
An exciting opportunity for the Group (PCF.LON) and new PCF Bank Ltd; the positives of operating a bank include the opportunity to diversify treasury operations and fund directly from the savings markets. Matching the funding to risk appropriate customer loans should be straightforward, managing the regulation and bank oversight less so as this is more complex, but the rewards could be significant.
An authorised UK bank now seeking access to retail deposit funding; following bank authorisation PCF (PCF.LON) is now raising retail deposits. The group has historically relied upon more expensive wholesale market funding, but following the change to a diversified treasury strategy to include deposits, the fall in overall cost of funding will enable the Group to offer more competitive finance rates to customers in higher credit areas of the asset finance market.
TRADING AHEAD OF EXPECTATIONS
PCF Group Plc (LON:PCF), the UK specialist finance bank, released yesterday morning a trading update ahead of the full year results for the financial year ending 30th September 2017 in which the bank reported strong trading during 11 months of the year and now expects full year results to be ahead of market expectations. The full year results will be released on the 5th December 2017.
The very pleasing out-turn now expected for the year has been due to a number of specific factors which includes the decision to move into direct retail deposits taking operations, the result of several years’ progress with UK regulatory authorities.
The bank’s persistence in working towards receiving UK regulatory approval to raise retail deposits was finalised on the 27th July with the commencement of retail deposit taking activities and the bank has raised in the two months since approximately £51m, exceeding management expectations. The PCF Group Plc (LON:PCF) retail deposit strategy is to access the UK retail savings market on a measured basis, matching the internal need for funding to customer financing requirements and thus not to attract an excess of deposits that cannot be utilised. When appropriate, PCF Group Plc (LON:PCF) will also use retail deposits to pay down wholesale debt.
However, the rate at which the bank has gathered deposits since commencement of deposit activities bodes extremely well for management expectations for the future loan book, which is expected to grow to £350m by financial year end 2020 and then to £750m by financial year end 2022. By our estimates the loan book should therefore grow above £200m by the end of financial year end 2018 which this trading statement, in our view, supports. The loan book has grown by 17.5% in the 11 month period to £141.6m, in-line with our expectations for the whole of financial year 2017.
The growth in new business origination has accelerated in the year so far to £74.1m up from the £62.1m reported in 2016. The growth across the bank was +19.3%, supported, we suspect, by better pricing in the latter stages of the year afforded by the less expensive retail deposits gathered. Portfolio quality remains high with a loan loss impairment charge of just 0.5%. Once again, PCF has reminded investors that the bank does not offer Personal Contract Purchase (PCP) products in which the customer can receive credit on an interest payment only credit arrangement instead of a fully amortising hire purchase contract arrangement in which both interest and principal must be paid at each payment date.
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