Surprising that no existing thread on Debtmatters (DEBT). Big run up this year and Shares are expecting more to come. Been watching for a while but recent news of accelrating expansion has encouraged me on board.

DEBT is a relative newcomer to the market: revenue up 230% to 2.44 at interims to Sept 2005 and pbt up 530% to 818K. In comparison DFD turnover to October 2005 (interims) more than doubled to 6.4m with pbt of 1.86m. DEBT achieved 200 IVA's for the first time in September: this became 344 in January and 534 in March. DFD has approaching 20% of the market which appears to be expanding at about the rate achieved by DFD as their share is constant. From this I deduce that DEBT has a way to go at its exceptional current growth rate. OK a pe around 90 appears high but two years could bring it to 30 and then 10.

From the charts there is terrific momentum in the climb. It may be that we have had two legs of a three-legged climb. Best to be on board for the journey!

Eric

Eric

Re question a) your post 15 above. I think I read somewhere that they only take on case where debt exceeds 15,000. So 2,265 is only 15% max of the deal value - quite modest compared to what liquidators take. I assume like liquidators it comes up front, but unlike them it is paid by the creditors, not the debtor in the first instance.

Anyway 5% down today - must have seen me coming as usual.

sd

sd: As I understand it, the IVA is managed by the Insolvency firm over a five year period. The leading firms seem to have an entry point of 15K but one of the advertisers on CEEFAX says 5000. The client needs to put in 30% min. of the debt part of which goes to the advisor. Interested in DEBT's reference to a Trust Fund. It may be that this enables them to take credit up-front; but then who bears the cost of administering the scheme: most should be straight-froward as each will have its own bank account, but there will be annual reviews and revisions if circumstances change. Doing a search on Debtmatters throws up plenty of competition using the term 'debtmatters' as an advertising slogan so there are probably unscrupulous operators in the market. However, it is clearly best to use an established practitioner as they will have established rules with the creditors who will normally be represented anyway by a leading accountancy firm. I draw the conclusion that success breeds success so it will not be that easy for a new provider to enter the market. Suspect there should be a run-up to the June results with a profit-taking opportunity then (before or after depends on the figures which I suspect will be ahead of market expectations, based on sd's calculations).

Eric

sd: Have a look at the Note from DFD this morning. DEBT up in sympathy (should that be empathy?). Significant that market is up overall by 130% in first quarter. Obviously this is bringing in competition, e.g. from the banks - even though they are a major part of the problem! lol! How do these figures effect your calculations? I expect that current year's figires will need to be raised. DEBT report before DFD so should start a further run up to the results, which I think are 10th June.

Eric

A first look shows that DFD's view of the market and their share (20%+) of it fits roughly with DEBT's respective view and share (12%+). DEBT is growing faster than DFD rising from 7 to 12% over the last year compared to DFD's 18 to 21% market share.

Looking at Operating Margin, Return on Capital, PE and PEG from Digital Look for DFD and my own calcs fo DEBT, they are very level pegging (can't be sure if we've used the same basis of calculation). DFD has a lower 2006 PE (47 v. 53) but level pegging for 2007 (25 each), but DEBT has a lower PEG (because it is growing EPS faster) and is therefore better value. DEBT's margin seems higher as does its return on capital - again better value. Growth alone is not the crictical parameter, value is. All of which seems to suggest your inital appraisal that DEBT had further left to grow from a lower base is right. Maybe being last in a bog is good for DEBT since DFD have paved the way (at some cost?).

Received a great little email recently about the difference between growth and value using IBM and Exxon as examples.

ANNUAL GROWTH RATES, 1950-2003
IBM Exxon Advantage
Revenue per Share 12.19% 8.04% IBM
Dividends per Share 9.19% 7.11% IBM
Earnings per Share 10.94% 7.47% IBM
Sector Growth 14.65% -14.22% IBM

AVERAGE VALUATION MEASURES, 1950-2003
IBM Exxon Advantage
Average P/E 26.76 12.97 Exxon
Ave. Dividend Yield 2.18% 5.19% Exxon

Dividends are a critical factor. Those who bought
Exxon's stock and reinvested the oil companys dividends
accumulated almost 15 times the number of shares they
started out with. Investors in IBM who reinvested their
dividends got only three times their original
shareholding.

Yes, both stocks have done well. But investors in
ExxonMobile earned 14.42% per year on their shares from
1950-2003. That's more than half a percentage point
ahead of IBMs 13.83% annual return. So although the
difference is small, $1,000 invested in the US oil giant
would be worth over $1,260,000 today. If you put $1,000
into IBM, you would have $961,000...some 24% less.

In the short term DEBT will grow faster and its SP may rise faster. But over the longer term who ever pays the best dividends will also be a crucial factor.

If I had the money to allocate enought to both shares I'd be laughing - come to think of it I did, but sold DFD far too early. Hopefully won't do that again in a hurry.

sd

Thanks, sd, for prompt and thorough reply - deserve extra bone and walkies. Both shares are still an excellent investment given the growth of the market and growth of there relative shares. Clearly this sort of growth rate won't last for that long although the total market must be pretty large. It appears that the banks are trying to jump on the bandwagon; the cost of entry must be quite low; you wonder how the lenders will react in the medium term as the cumulative cost of IVAs must be pretty high. I'll see how the sp of DEBT moves through June before deciding whether to hold longer term.

Interesting analysis of IBM and Exxon; I woner how HSBC or Tesco would compare. I did have some 1500 of IBM shares purchased at a discount as an IBM employee around 1961: talk about DFD but its those who buy young and tuck away who are the biggest winners. Still trying to make up for lost time - yes, and that costly wife!

Eric

sd I wonder how you rate the relative capitalisation of DEBT and DFD. If I have the up-to-date figures, DFD is capitalised at about 163m (37m shares @ 440p) whereas DEBT is cap'd at 83m (24.6m shares at 340p). There certainly should be a differential but surely not 2:1; perhaps 3:2 is better. Picture should resolve after respective results in June. Nominal price should be about the same given ratio of shares in issue is 3:2.

Eric

the respective caps are relative to EPS which relationship is reflected in the PE. as noted above this is pretty much level pegging prospectively, so the cap differential is about right with DEBT likely to grow faster than DFD.

sd: thanks again. How do you see ACG in comparison? Growth appears even quicker than DEBT. One advantage for ACG is that they seem to have a wider range of offerings whereas DEBT appear to concentrate on IVAs. Thus they will attract people who just want their debt managed better than they can do themselves. Whereas DEBT appear to take credit up front with a Trust Fund invovled, ACG have a forward flow of payments. Do you agree this analysis? cap somewhat lower although recent rise even stronger than DFD and DEBT.

Eric

eric - difficult to tell at first glance from first profitable interims compared to full year for DFD and DEBT. However, it seems their PE, margins and ROCE are not as favourable as DEBT, although they seem to have the same markjet share (12%). They could be growing even faster than DEBT - difficult to tell from a loss-making 2005 year to a first profitable year. Full year revenues could be 11.4m up 300% on 2005.

Their different business model - more services than just IVA's and referral as a means of acquiring clients instead of just advertising - is not so easy tom compare without a full set of accounts to go on. I suspect their other activities are much lower margined than IVA business whcih they claim is 60% gross margin. However their overall gross margin is only 35% H1 2006.

Their chart shows an interesting comparison between all three. Starting at 0% 1 year ago, DFD ends up at 200%, ACG at 300% and DEBT at 550%. So DEBT clearly has the greatest momentum and relative strength. By contrast AIM-allshare index ends at 30% and General Financial sector at about 80%. Over 2 years the respective figures are 180%, 180%, 370%, 10% and 60% - again DEBT the outright winner.

I remain happy with DEBT especially as it regained my purchase price after a somewhat sulky performance immedaitely after I bought!

sd

This sector particularly hard hit in market fall-out, presumably because of previous increases and therefore nuimber of investors who want to pocket their profits. Will have to consider reducing my holding if market doesn't recover tomorrow - I suspect many are in same position, partic ularly those who utilise derivatives.

Eric

One word of caution ,these are a high beta stock and since i bought them in August they have been volatile, when the market dropped they seemed to drop like a stone,and when it turned they went up in leaps and bounds ,I sold a good part of my holding recently so am not too bothered ,however i wouldn't be surprised to see them bounce right back.
I don't think this sector was hit any harder than other shares i am in or watching ,most took a battering today,,here.s for a quick recovery.

Eric - it's not the sector which fell 4-5% today, it's DEBT which fell 8% - don't know why it's more volatile - maybe it has fewer insti's holding and more PI's/daytraders. Hope jimmyb's right about beta working both ways!

sd

In fact later trading was positive so this seems to bear out your comments, jimmy and sd. Volume not that big so seems like part of a general mark-down.

Eric

In my opinion this got off lightly today ,i expected to see it down a lot more than 1p ..

As i thought when i looked last night ,it had got off lightly ,not today though ,,if the market turns this will turn sharply with it ,my only concern is that this is more than just a correction ,i suppose the next few weeks will tell .

Jimmy: I suspect it is just a greater level of volatility probably arising from the proportion of hot money in the share and possibly also shorting it. Was shaken out at 304p as I held the shares in a cfd and couldn't risk a further fall. Convinced on the fundamentals but it is cioping wioth the market! How is my doggy friend taking it?

Eric

Sorry to hear that Eric ,this is not normal circumstances ,since i was in,, it has bounced around but always climbed ,,i stopped myself out of a large spread bet on CHTR (just as well) other than that i'm staying out until it looks like there is some sort of direction to the market ,i'm not clever enough to read this one .

Jimmy. Well done as you saw the merits of this one earlier than most of us. Bound to be a shake out in this sort of market even though the analysis by sd and others shows that there is a way further to go. If you are sitting on a really good profit, might be worth taking half of it or, better, recovering your original stake.

Eric ,i took profits a while back and left a few to run ,i also sold those when the market turned ,so i got this one right ,luckily i wasn't in much when the market fell ,except a large spread bet on Charter ,however that was enough to turn me to alcohol .Cheers .

Well done again, Jimmy. A lesson that it has taken me a long time to learn is, if you don't get in early, don't get in at all. Its the early birds that catch the worm. Have you any juicy worms in sight?