News Column

Private & Commercial Finance Profit Rises 50% As Portfolio Grows

June 9, 2014

Samuel Agini

LONDON (Alliance News) - Private & Commercial Finance Group PLC Tuesday said its full-year pretax profit increased by half, driven by an increase in revenue, as the AIM-listed finance house grew its portfolio for the first time since the start of the financial crisis.

It said work also is being done to obtain a deposit-taking licence that would allow the group to further boost its size.

Chairman David Anthony said he is confident of further profit growth and said the group hopes to be in a position to declare a dividend after March 2015.

In a statement, Private & Commercial Finance, which lends to consumers and businesses, said it made a GBP1.3 million pretax profit in the 12 months ended March 31, compared with GBP829,000 a year earlier.

One of the group's own key measures, return on average assets, based on the ratio of pretax profit to the average size of the group's portfolio, rose to 1.5% from 1.0% over the year. The finance house has a 2.0% target for the end of the current financial year. Chief Executive Scott Maybury told Alliance News the group is likely to set a new 3.0% target over a three-year period once the current target is met.

Revenue increased to GBP42.7 million for the year, up from GBP41.4 million, boosted by growth in both its consumer and its business lending units. New business volumes increased to GBP50.8 million, from GBP39.3 million, driven by the consumer finance division.

Administrative expenses fell to GBP6.9 million, from GBP7.2 million, as the group kept costs under control and kept average staff numbers static.

Maybury told Alliance News that the finance house has benefited from the UK's consumer-led recovery, with rising car sales, and the traditional high street lenders' retreat from lending to small and medium sized enterprises, boosted by a regulatory push to make banks de-leverage and shore up their balance sheets in the wake of the financial crisis.

At the group's interim results, Maybury had told Alliance News that he expected the group to report GBP45.0 million in full-year revenue, based on a growing its portfolio to GBP95.0 million. However, the group's portfolio increased to GBP88.7 million from GBP80.0 million, primarily because of direct sales fell short.

With new business currently won through brokers, Private & Commercial had wanted to grow its direct sales to GBP9.0 million, but instead managed about GBP1.0 million, according to Maybury. He said that the group has had some success in developing direct routes for classic car finance and horse boxes, and the strategy is seen a "nice little adjunct" to broker-originated business with efforts to continue. Maybury said Private & Commercial grew profits despite the shortcoming in direct sales as its existing business model operating better than expected.

The group has been focusing its efforts on retaining existing customers and on securing new business with higher quality credit areas, with loan-loss provisioning charges falling to GBP2.0 million from GBP2.3 million in its last financial year.

"When banks moved out of the market place, there was an opportunity to sell to the prime market," Maybury told Alliance News. "We're attracted to prime and near prime areas, and we're not going further down the credit spectrum. We're very committed to maintaining our presence in that spectrum," he added.

The group wants to continue growing its portfolio to a size of GBP250.0 million. Maybury told Alliance News that Private & Commercial's key strategic goal of obtaining a banking licence, which would allow it to fund itself with retail deposits instead of bank debt, is vital to growing its portfolio to that sort of level. The CEO told Alliance News that the project will be classified as an intangible asset to be amortised over time. He said that the group is currently conducting the research and work to design the processes and develop the operating model and policies required under the Prudential Regulation Authority's application process.

Private & Commercial Finance said it is on track to obtaining a licence in March 2015. The group currently funds its portfolio with wholesale banking debt, which is more expensive than being able to use retail deposits and can make borrowers susceptible to banks' lending appetite. Even so, Private & Commercial Finance said it will continue to approach new and existing lenders to ensure it has enough financing to support growth beyond the current financial year, having GBP14.4 million undrawn on its existing GBP96.0 million debt facility.

"We'll always have an element of it and will retain some leverage in order to boost returns," Maybury told Alliance News, "but over a three-year period we want to replace 75% of our bank debt with retail deposits."

"We will be looking at two to three year deposits," Maybury said, "but we won't be offering current accounts or credit cards." The CEO said that the lifespan of the retail deposits will match that of its portfolio, which has an average age of two to three years

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Source: Alliance News

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