Fairpoint gets on top of its debts


Debt management and finance specialist Fairpoint Group is building on a turnaround in its fortunes engineered by chief executive officer Chris Moat, and hopes to show that its mix of products and services make it more than simply a beneficiary of recession.

The Lancashire-based company, formerly Debt Free Direct, has already cheered followers with indications that 2009 profits should show a sixfold surge to 6 million pre-tax and, says Moat, is now in a position to review its 'strategic options', which he suggests could include acquisitions and/or joint ventures.

AIM-quoted Fairpoint, which now has more than 25,000 customers on long-term debt solutions, says revenues in the second half of last year were 19 per cent ahead of the previous year's second half and 9 per cent above those achieved in the first six months of 2009, which saw 2008's 1.2 million interim loss turned into 2.2 million of pre-tax profits. By the end of last year, Fairpoint had brought borrowings down to 4.5 million from a 10.9 million peak 18 months previously, which was 'well ahead' of the board's target of reducing borrowings to below one year's pre-tax profit.

Analysts suggest the company's net debt could fall to between 1 million and 2 million by the end of this year. That would leave Moat and his team with scope to pursue growth through takeovers or deploy cash in other ways.

One of these is dividend payments. Directors say they plan to reinstate dividends, with an interim payout of 2p a share in March, and thereafter their intention is to pursue a 'progressive dividend policy'.

Crucial to Fairpoint's progress has been a beefing up of its operating effectiveness. 'Eighteen months ago we converted 3 to 4 per cent of calls into arrangements, but now the figure is more than 10 per cent,' boasts Moat. 'The business improvements implemented throughout late 2008 and into 2009 are now gathering momentum. This has translated into strong profit growth and a cash-generative business'.

Moat argues that offering a wider product range, with individual voluntary arrangements (IVAs) as well as debt management, has also helped win more business. Fairpoint's new debt management product, akin to an IVA with interest frozen but no capital forgiveness, recently accounted for 14 per cent of gross profits and 29 per cent of products sold.

Creditor approvals in the first half of last year were running at 95 per cent of schemes proposed, against 80 per cent or fewer two years ago. Client applications were up 25 per cent on the previous year.

Moat says rising unemployment has been 'a real catalyst' for growth for the business, but he insists he is not unduly concerned about signs in some quarters of a flattening or fall. He suggests a coming public sector shake-out should offset any falls in private sector jobless rates.

Anyway, Moat is at pains to discount suggestions that Fairpoint can only thrive during a recession with customers losing jobs or fearful of doing so. He argues that the prospect of returning inflation, with rising interest rates, could bring more debt-laden consumers to Fairpoint's door.

Moat notes that 'a higher proportion of home owners are coming to us' with debt concerns. That could mean the company will see a revival of its mortgage broking activities.

Fairpoint recently launched its 'Clear Start' service, giving free advice to customers for a fee from their creditors. Distribution will be through partnerships with other commercial debt advisers and bodies such as the Citizens Advice Bureaux.

With earnings of 10.15p on the cards for 2009, City analysts see the company making 7.5 million pre-tax this year, for earnings of 12.5p a share. Highlighted by Growth Company Investor at 51.5p last March, the shares have reached 71.5p, for a prospective price-to-earnings ratio of 5.7, which, though the market is somewhat illiquid, should leave scope for further potential speculative gains over the medium term.

Recommendation: Buy
Ticker: FRP
Sector: Financial Services
Listing: AIM
Mid-price: 71.5p
Market cap: 31.2 million

LISTEN: Chris Moat, CEO of Fairpoint Group, provides an investor presentation

Click here to listen

Fairpoint Group plc featured in our weekly round-up of announcements from AIM, see more at http://tinyurl.com/ox4ehsv

ST of IC today chart break-out looking increasingly imminent,

Henderson Global >5%

Another great set of results and seemingly loads more to go for - See more at: http://tinyurl.com/q5pml59

ST of IC today - On a bid-offer spread of 188p to 190p, valuing the company's equity at £86m, I would run profits and maintain a target price range between 200p and 220p.

Good results but why the drop in sp?