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
PCF Group ( LON:PCF) has announced that deposit funding from retail investors, which only started in July 2017, has increased substantially again and now exceeds £100m. This compares to previous announcements of £53m at the end of September ‘17, and £81m at the end of February ’18. We estimate that compared to the last reported Group total liability dated September ‘17, the bank now only requires an additional c.£35m of deposit funding to be able to completely replace, should it be desirable to do so, all of the third party bank funding reported at that date. However, whilst funding has grown significantly since the full year results, loans to customers continue to expand also. It is likely therefore that the bank will continue with at least some sort of diversified funding for some time yet to help manage this growth.
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.
Following the release of the 2017 full year results for the financial year to end September 2017 on the 5th December 2017, and ahead of the release of the 2017 annual report due on the 6th February 2018, we have updated our forecasts for profit and earnings for the period 2018e to 2020e.
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