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PCF enjoys big boost from recently-launched banking division
For a company that provides loans to those wanting to purchase cars or equipment to small and medium-sized enterprises (SME), it would be ideal to not have to borrow the money first from a high street bank.
This is exactly what PCF (PCF:AIM) has done in the past. The company provides business loans and used to have to charge higher interest rates to turn a profit as it had borrowed the funds itself.
However, last year the company started its own bank, perhaps a risky thing to do in the UK given current economic conditions. But it looks
to have turned out to be a masterstroke as now the company can reduce its interest charges and target a better quality lender.
This has had the result of keeping impairment rates low, i.e. no bad debts, and allowed it to grow the business.
PCF recently announced it had achieved £100m in retail deposits which is not bad going for a banking arm that only started operating in July last year.
The banking division boosted the company’s new business originations by 93% in the five months to 28 February 2018 to £54.5m. This was helped by the lower cost of capital coming from the aforementioned retail deposits.
In the same period the company grew its portfolio of loan receivables by 18% to £172m. Robert Saunders, an analyst at stockbroker Stockdale, says ‘we are encouraged that new business origination in consumer motor finance is picking up following enhancements to the IT platform and access to more prime customers for its brokers’.
IS IT A REAL BANK?
Yes in a word. It has to follow the same stipulations of the FTSE 100 banks such as capital adequacy and in this respect puts some of its larger peers to shame.
Its common equity tier one ratio is a very healthy 26.3%; to put that in context Virgin Money (VM.) targets around 12% although in fairness is a much larger operator with multiple divisions including a credit card operation.
Being in the banking business, impairment rates are crucial and PCF’s rate is just 0.5%. Considering it is involved in lending to SMEs, known for having cash flow problems, this is something worthy of note.
The wider group which the bank helps finance has a very broad customer base in its consumer credit business and SME lending business. It has around 12,000 agreements in place.
While a bad Brexit and a decline in the UK’s economic health could damage PCF, it is well capitalised and could make bolt-on acquisitions to reduce risks through diversification. (DS)