LON:TIME | Ipm | Dearg Doom

24th Jul '15 by Dearg Doom

5 comments 7434 reads

1PM (OPM) Share Price 70p

Final year results issued this morning. Reading the results quickly, profits are up, but EPS only grew by a few percentage points.

The extra costs of moving to larger premises, IT spending, recruitment and marketing are mentioned which amounted to 880K may be some of the reason. 1PM's overall investment in the above resources is going to be spread over two years.

Extra money that was raised in the debt market, coupled with share capital raised during the year has allowed the business to expand.

The highlight for me is the maiden final dividend. Although small, it is a start and only right that shareholders should be rewarded. I am sure the dividend will be increased in line with profits.

1PMutilizes 150 financial brokers to sell its products to SMEs’. Loans vary in size but are normally from 1K to 50K over 1 year to 5 years. The business has had constant organic growth for 5 years

Key Points from results

“Financial Highlights:

· Revenues up 31% to £5.5m (FY14: £4.2m);

· Profit before tax up 20% to £1.62m (FY14: £1.35m);

· Earnings per share up 4.8% to 3.72p (2014: 3.55p);

· Proposed maiden final dividend for the year of 0.35p per share;

· £10.9m of new funding raised during the year (FY14: £11.3m);

· £3.8m share placing in October 2014;

· Balance Sheet significantly strengthened during year; net assets at 31 May 2015 of £12.4m (FY14: £7.0m);

· Bad debts and provisions as a percentage of the portfolio at an all-time low of 0.85% at the year-end (FY14: 1.29%); “

Outlook

The company expects growth through increase staff numbers, improving IT, and demand for their products. I have no reason to doubt them having grown the business in this…

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JASPERTHEDOG

24th Jul '15

I think your take is, largely, fair. But I differ from you in that I think it highly unlikely that any of the established banks will want to get involved with the SME market in the near future, let alone on cut-throat terms. The 'disrupter' banks are borrowing money on very similar terms to OPM so their approach will be similar. OPM is a tightly run ship with very short lines of communication, this shows up in the low bad debt figures as action can be taken at the first sign of a problem.
The high P/ER is a reflection of the high rate of growth and is tolerable just so long as the growth is maintained (to state the obvious!).
I hold a small position and am pleased to do so.

Dearg Doom

Hi Jaspethedog.

Thank you for your interest and fair comment.

Yes I agree with you in the near future the banks will give 1pm a relative clear run.

However if 3 years is the medium term than a estimate of 1pm earnings compounding at 20% p.a. may amount to 6.4p per share in y/e 2018, which when given a multiple of 12 gives 77p as a fair price for 3 years growth in earnings.

The present high multiple is I feel more likely to decline as the prospect of competition from other large and small players encroach on their target market. Financial brokers can be offered more commission by challenger banks. Big banks can charge less interest.

My main concern is that I see the competition more from sleepy big banks who can cross sell many other business banking/insurance services to the SME's. Some cross subsidy may be created to win or hold existing SME's.

Big banks don't have personal memories but rather have rows and columns like spreadsheets that will readily identify a profitable sector if it exists to be exploited.

The historic p/e multiple was approx.19 before the results. Continuation of the19 multiple would see the price of 1pm around £1.20 in 2018 at eps of 6.4p.

77p or €1.20 by 2018 is the price range.. Difference of opinion that what makes a market. We have a upside target which shows a fabulous return on today's price or a damp squid of a return on where we are now to 77p

I do think the company is well run and will grow its earnings. My only hope of buying shares myself in 1pm is a major sell off in the general market that is not specific to a 1pm negative RNS.

In the meantime I wish you every success with your own holding. To quote the song title from U2 "I haven't found what I'm looking for" as yet to make that purchase.

Around 50p or less, we are in business!

Regards

shanklin100

25th Jul '15

Numbers in the last few trading statements, results statements and broker forecasts provide the following...

New business
H1 2014 £5.1m
H2 2014 £5.7m
H1 2015 £6.9m
H2 2015 £9.2m, including £5.5m in the final three months
Perhaps the big Q4 has been enabled by the infrastructure changes and staff recruitment?

Additionally, OPM stated in the 2015 FY results, "Monthly sales have doubled since the last financial year and the Board is confident that new business origination will continue to increase over the next 12 months.". This is less helpful than it might be in that they don't make it clear how "monthly sales" is defined; I guess it does suggest that there is still decent growth in the business although once we get to the anniversary of the new systems, staff & offices, perhaps the growth will be less strong?

Loan Book (at beginning of last 5 halves)
H1 2014 £14.8m
H2 2014 £17.7m
H1 2015 £20.4m
H2 2015 £24.3m
H1 2016 £30.4m

Revenue, Pre-tax & EPS
2014 (A) £4.21m, £1.35m, 3.5p
2015 (A) £5.50m, £1.62m, 3.72p
2016 (E) £8.90m, £2.00m, 4.4p

The 2016 numbers are estimates from WH Ireland, from before the June 2015 TS. Given the way new business appears to feed into builds in the the loan book, the 2016 forecast revenue does not seem unreasonable albeit without detailed knowledge of OPM's business model, it is difficult to extrapolate with any great certainty.

However,if bad debts stay anywhere near current levels,I suspect the estimate is light in terms of PBT. Specifically, given OPM expanded to cope with more capacity more efficiently, it seems unlikely to me that a 110% increase in revenue since 2014, would not lead to at least a doubling in PTP, say £2.6m, giving a higher EPS and lower P/E. Extrapolatingthe 2015 estimates into 2016 based on the predicted increase in revenue, gives one a slightly higher number for PBT.

If OPM's increased capacity enables them to further accelerate new business in a more efficient manner, without increasing bad debts, PBT could be higher.

Hopefully WH Ireland will issue a post-results note with new (more realistic?) estimates.

All IMHO.

Regards, Martin

I should add that despite OPM apparently being a very well-run business, I believe their introduction of a dividend, even if small, is unwise.

As the FY results state, "The raw material for 1pm's business is cash". So why waste it on shareholders? If we want cash we can sell some shares. IMHO OPM should be maximising shareholder value by minimising the need to raise more equity cash.

Hi Martin,

Thanks for the figures above and your interpretation.

1pm

Profits going forward depend on the mix of funds(debt v equity) raised and internal monthly cash receivables which can be lent out again during the year. 10.9 million raised at end of year probably explains the increase in loans in the last 3 months because they had the funds.

Back of envelope calculations.
Leasing £25.2m
Loans £5m.
HP £0.2m Total Loans 30.4 million

1.6 million operating profit expressed as % of total loan book of 30.4m gives 5.2% net margin.

This year they have potentially an extra 10.9m to lend giving 600k extra profit to 2.2million operating profit. Take away the internal resource investment gives of 400k brings this back to 1.8m profit. . Divide this by the weighted no of shares gives around eps next year of 5p.

1pm do lend to new start business which is a bigger risk than they think or admit. I do see a larger bad debt provision rising to the average in the industry.

They indeed do have competition from banks for larger amounts lent to SME's on lower interest rates.

The 2017 profit figure is the key which depends on funds raised and whether further internal investment in resources will be necessary and at what cost.

The market has the share price currently too high like so many other AIM companies. Hope a gust of wind blows the share a lot lower for a purchase decision.

Regards

Ipm

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Dearg Doom

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