http://www.pcfg.co.uk

Trading at a significant discount to current NAV. Recently put 4M in the bank. Two brokers notes out from August for BUY and ACCUMULATE.

Company also pays a dividend.

Seems to have been forgotten so maybe now is the time to BUY.

Market cap 53m

Net assets as at 31st March 27.4m
Fund-raise in April 10.5m
Total net assets as at end April 2017 37.5m

Profit for 6 months end March 1.7m. Add back 0.5m one-off bank set up costs = underlying profit 2.2m. So, underlying profit for year 4.4m assuming no growth.

So assuming no growth, no value to the bank and no reduction in NIM due to taking retail deposits we get the market cap = net assets + 3 years profits.


So, a few quick sums. Retail deposits reduce interest bill by £1.5m, so underlying profit = £6m based on current portfolio of £128m.

If you assume 5 year portfolio growth to £750m from current £128m as stated by directors, that's a factor of six, would give a profit of £36m a year.

I have bought a reasonable quantity. Price appears to have pulled back due to competitor in trouble with regulator over PCP, but PCF have no exposure to PCP finance.

Directors say will not offer any banking products outside current portfolio but I believe there's a value to the bank too, which will become apparent over time.

First post on this stock in 10 years so let's see how we go

Interim presentation and 3 research notes on company website. Article in IC as well last week although I haven't read it.

Finally usual warning about Brexit sensitivity although one would have though soft Brexit would help rather than hinder

Ticking along nicely since I bought in July

An update from me. I still hold and will continue to do so as the strategy plays out over the next five years.

PCF has two areas of business split roughly 50/50:
1. Lending to consumers for cars
2. Lending to business for vehicles, plant and equipment

It has historically funded the lending through the wholesale market and retained earnings but around March became a bank and since then is shifting from the wholesale market towards retail deposits on fixed rate bonds. This significantly reduces its costs long term (or improves NIM – net interest margin) but this has not yet showed up in the finance figures as it’s only been a few months and there have been set up costs to becoming a bank.

It currently has a portfolio size of £146m, which grew by 20% last year and plans to increase this to £350m by 2020 and £750m by 2022. The banking license and being able to take retail deposits is the trigger for this.

PCF currently has a market cap of £59.4m based on a share price of 28p per share, Net assets of £39.6m. If you run the P/E calculation based on underlying profits of £5m, corporation tax rate of 19% it gives a P/E of 14.7. The P/E calculation takes no account of assets though so it would seem better to look at this based on a multiple of future earnings.
On this basis the market capitalisation exceeds the net assets by £59.4m-£39.6m= £19.8m which is only 4.9 years profits after tax.


In summary my belief in this trade is based on:
1. The market cap is only 4.9 times current profits once existing assets are allowed for.

2. The 4.9 multiple is based on current profits. If the portfolio grows fivefold at an improved NIM then it’s clear the market cap will be higher than £59m. One could make an estimate of this. (Speculate a five bagger minimum?)

3. Although PCF have stated they have no plans to cross sell other products as a bank, they do have a banking licence. There is a thought in the back of my head that 5 years down the line, their ambitions will be different than they are today. The success of Shawbrook, Aldermore, OSB, PAG and the other challenger banks is bound to start to look attractive at some point in the future as the balance sheet strengthens.


But maybe there’s a reason the share price is so low? I’ve checked the following:
1. Are the directors credible? Who knows but I’ve met Scott Maybury the Chief Executive present at an investors evening and he seemed sensible enough to me. All the directors and non-execs have been buying shares over the last year which is always a good sign

2. Is the business plan any good? Rather unusually for AIM it’s set out and available on line in this documentation pages 7-11: https://pcf.bank/media/1430/preliminary-results-presentation-december-2017.pdf

3. Maybe there will be a load of bad debts in the future? You can assess this yourself on page 12 in the above link. The bad debt write off charge has dropped from 5% in 2009 to 0.5% today and given high levels of employment I see no reason for this to worsen anytime soon. PCF only loan to prime credit customers and don’t do PCP and continue to pursue this policy and the percentage of business within the top 4 credit grades increased to 63% from 57% all year.

4.Maybe the government are going to investigate them for inappropriate lending? PCF are at the complete opposite end of the market to PFG only doing prime and no sub-prime but yet I suspect PFG is dragging down PCF share price by association.

5. Maybe the balance sheet hides a load of issues? Page 18 of the presentation is pretty clear. Of their £172m of assets, there is £2.7m of intangibles. I’m always suspicious of intangibles. In this case I suspect it’s the investment in the new banking software but whatever it is, it doesn’t really matter. Even if the £2.7m is actually worth nothing, it doesn’t affect anything as it’s negligible in size to the market capitalisation and future profits


I can’t find any skeletons in the cupboard other than general Brexit scaremongering. I will be holding long term. The presentations set out the strategy and gives me a high level of conviction this will be a multi-bagger, even thought it's already multi-bagged if you bought back in 2011

Statement contains the words asset diversification which I assume to mean that in due course they will diversify away from car finance. Great news as this is the first time I've seen this.


"The Board is pleased to report that trading in the first five months of the current financial year has been strong, in line with management's expectations.

"We can report that new business originations in the five-month period to 28 February 2018 were 93% ahead of the comparative period last year at £54.5m (2017: £28.2m). We are also pleased to report that the quality of originations has been maintained. The lending portfolio has grown to approximately £172m compared to £127m at this time last year. Our medium-term targets for the Group remain unchanged at 12.5% return on equity and a lending portfolio of £350m by September 2020, while asset diversification remains a goal and will follow in due course.

"The successes in new business origination in the short time since the July launch of our banking operations reinforces the Board's strategy to utilise retail deposits, with their lower interest cost, to fund growth in our existing markets. The launch of new prime terms for our existing products has been enthusiastically received by our brokers and customers alike. We have also delivered significant IT enhancements in consumer motor finance to restore origination growth to this division and support our reputation for excellent customer service.

"Following our success in achieving the Savings Champion Award for 2018 Best New Provider, we have seen retail deposits increase to £81m at 28 February 2018. The Group has made good progress in its treasury strategy by replacing a proportion of its more expensive wholesale debt with retail deposits and by gaining membership to the Term Funding Scheme at the Bank of England.

Apparently was well received at Mello which is not surprising as the share price is ridiculous. Long term hold for me.

Trying to get through resistance today.

Breakout. Going like a train today