Is the time right for 1PM?

3rd Jan '14 by Brilliant Leader

3 comments 10868 reads

One of my picks for the 2014 growth portfolio was 1pm (LON:OPM) , a specialist asset finance provider for the UK SME marketplace. In essence, 1PM have been growing by filling the gap created by banks and larger asset houses being reluctant to lend to SME customers. The lending is typically lease finance secured against business assets. This is a business model that has been established for many years, so there is nothing obviously unique about 1PM’s business other than smart relationship selling and astute underwriting to exploit a current gap in the market. While the financial performance of 1PM has been very encouraging over the past couple of years, my hesitation has always been around the sustainability of their growth – what happens to 1PM when the banks resume actively lending to the SME sector again?

This said, 1PM are a relatively small company and it is certainly possible that they could continue to grow in this niche for several years, putting them firmly on the radar for my own 3-5 year investment timeframe. While the company have stated there is a possibility they will look at acquisitions in the future, the immediate investment case for OPM is that they continue to grow organically and can repeat their recent history of exceeding market expectations. The metrics are interesting:

Share Price 60p
Market Capitalisation £18m
2012/13 Revenue £3.1m (up 34.5% year-on-year)
2012/13 Pre-tax profit £775k (up 77% year-on-year)
EPS growth of 70%
Current Price to Earnings Ratio of 22
Company website http://www.1pm.co.uk/

These figures relate to the financial year ended 31st May 2013. In a recent trading update, OPM stated continued strong progress for the half year to the end of November 2013 (interim results to be released week commencing 20th January).

“The Board expects to report significant revenue and profits growth for the first six months of the current financial year compared to the corresponding period last year.

The Group has continued to enjoy strong demand and has written over GBP5m of new business during the first six months of the current trading year, a 28 per cent. increase compared with the first six months of last year (H1 2013: GBP3.9m).The Group also experienced record new business of over GBP1m written during the month of October 2013.

As at 30 November 2013 the…

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emptyend

3rd Jan '14

....mmmm.

I took a quick look at this and I can't say I find it compelling. Certainly there has been a gap in the market that they have exploited, but I wonder where they will be in 2-3 years time and (more particularly) whether the management is strong enough to deal with a scenario that may become less rosy as interest rates start to rise.

Put that together with a share price that has tripled in the last nine months and I would rather be selling than buying at this juncture - even though the upcoming numbers have been trailed as good.

Writing business is the easy bit - all the clearers wrote loads of business in the run-up to 2008....

Good luck though.

Brilliant Leader

4th Jan '14

Thanks for sharing your observations ee.

Just to be clear, I don't own any shares in OPM and I wasn't advocating them as a buy. Rather, I was highlighting them as a microcap worth watching in 2014.

I agree with much of what you say, although my sense is that there is some further upside potential (during 2014 if not on a longer term view). The shares are quite tightly held, so the reduced free float often serves to exaggerate the PER. Probably more of an opportunity for momentum trading (although not in any sort of size) than being a buy and hold share at this stage.

As I said in the article, I would want to see a more compelling business plan that demonstrated longer term potential. The other factor that I didn't mention in the article (to which you allude) is that the quality of the growing loan book is yet to be properly tested.

I hope you are keeping well by the way, it's been a while since our paths have crossed.

Cheers
Simon

Thanks Simon. Yes....keeping well enough thanks :-) Trust all is well with you!

Good point about lack of float - potentially a pretty volatile share then, in view of the vulnerabilities. As you say, perhaps momentum traders will fancy it - though they would need to be out before any unexpected disappointments that might trigger a big reversal.

cheers

Is the time right for 1PM?

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