The Financial Grimes: 25 June 2019

This top City analyst reviews the financial sector stocks making headlines today.

Jeremy Grime spent 15 years as a financial sector analyst, working at Altium Capital,RBC Capital Markets, Panmure Gordon and most recently asDirector of Researchat finnCap. Jeremy is also a qualified accountant.

Jeremy's blog is written with more experienced investors in mind. However, we have included a brief glossary at the bottom of the page to help those less familiar with some of the language used. For more on key financial metrics and valuation ratios clickhere.

News 

Kingswood Holding (LSE:KWG), capitalised at £12.3 million announces it has an acquisition pipeline in excess of £100 million and is in discussions over convertible preference share funding.  Unusual.

Bank of Georgia (LSE:BGEO) investor day in Tbilisi today. Announcement says priorities will be 20% ROE, growth of 15% and payout ratio of 25-40%.  The old 20% growth target has been tempered to 15%.

Monzo raises another £113 million yesterday valuing the bank at £2 billion, double the £1 billion valuation of last October. Monzo lost £33 million in the year to July 18.

Morses Club – AGM 

Share Price: 150p

Mkt Cap: £195 million

Conflict Disclosure: No holding

This is the year of transition for Morses Club (LSE:MCL), which runs a home-collected credit business. The core business is high ROE, cash generative, and low growth. Which is why the shares are cheap. And they are incubating a baby unicorn in the stable which has the ability to change the prospects materially 12 months from now. There is nothing in the share price for that.

Update - In core Home Collected credit market conditions are challenging but trading is in line with expectations. Customer numbers are stable and credit issued is modestly down as customers are borrowing less frequently. The two acquisitions of a digital current account provider, alongside a provider of online loans in the non-standard credit market, are expected to be earnings accretive in the year to Feb 2021. This brings a 25% increase in customer numbers.  

Estimates - Consensus looks for £22.7 million PBT in the year to Feb 2020 which is 14.1p EPS and the 7.8p dividend of last year will be at least maintained.

Valuation - PER 10.6 and yield of 5.2%

1pm – Trading Update 

Share Price: 42p

Mkt Cap: £37 million

Conflict disclosure: I Hold

1pm (LSE:OPM)offers asset finance to lease business equipment and small business loans to the UK small business sector.

An investment phase never excites the market which, coupled with downgrades and modest organic growth, is dull. But there aren't many stocks on a PER as low as 5X.  The turnaround may take longer.

Results – Revenue for the year to 31 May is expected to be £31 million, an organic increase of 6% and PBT £8.2 million, an organic increase of 4%. EPS expected to be 6.6p, a modest 2% increase on the prior year's 6.5p as deferred consideration shares were issued. Net assets £53 million.  Write-offs were 1% and provisions increased from 1.5% to 1.9% of portfolio. The company announces some investment in personnel and IT systems to invest in the platform to build the portfolio to £350 million over the next few years.  The interim results in January showed a portfolio of £126 million.

Estimates – The PBT of £8.2 million looks a little shy of the £8.6 million consensus, while the investment in costs suggests a downgrade to May 20 PBT expectations of £9.7 million.

Valuation - PER is 5X yield 2.6%.

For information about Jeremy's 'deep dive' company analysis, you can email him atjeremy@charltonillingworth.co.uk

Jeremy Grime is an independent equity markets analyst and freelance contributor, not a direct employee of interactive investor.