For the first seminar of 2017 Sharesoc found four new and interesting opportunities spanning from a collective investment trust to a solid-state battery manufacturer with much in-between. As ever I welcome the opportunity to hear from different executives, with the chance to form my own impressions first-hand, and I'm looking forward to the next seminar already.
Orchard Funding
To start things off CEO, and founder (and 53% shareholder), of Orchard Funding Ravi Takhar explained how he used his background in company financing to set up in 2002. Aware of the default risks inherent in small-scale lending he decided to focus on two specific niches: insurance premium finance and accountancy fee funding. In these areas customers tend to pay their bills because a default means that they're either uninsured or aren't going to get their tax return completed! This explains why Orchard Funding have suffered zero losses since 2007 and prior to that they dealt with one actual fraud in 2006.
In 2015 Orchard Funding floated to rid themselves of expensive debt and create access to a larger funding pool - a real constraint on growth. With their capital base secure, via a big share issue last year, they're looking to expand in the same markets with new and longer-term products. Ravi also wants to capitalise on their USP which is that they can allow a big broker to set up their own finance provision using Orchard Funding software. The only issues here are a backlog of consumer funding applications with the FCA and the reluctance of brokers to change their way of doing business.
On the plus side Orchard Funding is both quite low-risk and highly profitable with a gross margin of ~90%, a high PBT margin of ~35% and good fee-to-cashflow conversion. Ravi has his sights set on increasing lending from around ~£50m last year (with low leverage) and improving the rating of the firm by having it be viewed more as a challenger bank or a P2P lender. The profitable aspect of the latter is that bank lending is charged at 3-400 basis points over Libor while only ~3% is paid to P2P clients. This isn't quite in place yet with additional FCA permission required, hopefully in the next few months, but it should raise the profile of this small-scale lender when it happens.
Cerillion
In a similar vein Cerillion …
