Small Cap Value Report - (Tue 25 June 2019) - CER, G4M, LWB, CPR, OPM, FA., D4T4, LOOK

Tuesday, Jun 25 2019 by

Good morning, it's Paul here.

Graham was meant to be writing today's SCVR, but he's been overtaken by unforeseen  international travel delays, so at this late stage, has asked me to cover for him.

I had been gently winding down for a lazy day, and lunch with Mum, but that's all gone out of the window now! Instead I'll have to try to think of something sensible to say about small caps, at short notice. Will do my best!

To get you started today, I wrote big expanded sections late yesterday, in the evening, on both Porvair (LON:PRV) and Cake Box Holdings (LON:CBOX) , both of which I think look potentially interesting (with some reservations). The completed version went live at almost 1am, after a lot of work.

(7-8 am section - I can only do these with prior notice & an early night, so not applicable today, I'm afraid)

Cerillion (LON:CER)

Share price: 170.5p (up 4.3% today, at 10:26)
No. shares: 29.5m
Market cap: £50.3m

Major contract win

Cerillion, the billing, charging and customer relationship management software solutions provider...

Not to be confused with Carillion, of course!

I don't normally mention contract win type announcements here, as they're often spurious. However, Cerillion has been on my radar (thanks originally to Graham flagging it here) as a reasonably-priced growth company. It supplies what looks like mission-critical billing software to telecoms companies. That suggests to me sticky revenues, always a good thing.

I reviewed its most recent interim results here on 20 May 2019, and flagged that it might be a buying opportunity, if the company is able to hit full year targets (which at the time looked a tall order, but it looks like the company should now achieve targets). Although interim results were not good, management flagged that 2 high value contracts were imminent.

Sure enough, they've announced winning two major contracts, one here on 14 June 2019, and the second today. That's impressive - as it means we can rely on management commentary & outlook statements. Previous commentary was not just baseless optimism, they told it how it is - a big thumbs up for that.

It would be a great idea…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way


As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>

Do you like this Post?
77 thumbs up
0 thumbs down
Share this post with friends

Cerillion plc is engaged in providing billing, charging and customer relationship management software solutions to the telecommunications market but also to the utilities and financial services sectors. The Company is a supplier and developer of telecommunication software solutions and equipment. It operates through four business segments, such as Services, Software, Software-as-a-Service and Third Party. The Services segment provides services to customers on new implementation projects and enhancements. The Software segment supports and provides maintenance for the software, as well as the licenses to use the software. The Software-as-a-Service segment offers monthly subscriptions for a managed service and products on a pay as you go service. The Third Party segment offers third-party services or licenses, and includes re-billable expenses and pass through of selling on hardware. It operates in Europe, the Middle East and Africa, the Americas and Asia-Pacific geographical markets. more »

LSE Price
Mkt Cap (£m)
P/E (fwd)
Yield (fwd)

Gear4music (Holdings) plc is engaged in the online retailing of musical instruments and equipment. The Company sells its own-brand musical instruments and music equipment alongside with other brands. The Company offers over 1,500 products, which are sold under approximately eight brands, including Gear4music; Archer, which offers string instruments, such as violins, cellos, violas and double bass; Redsub, which offers bass guitar amplifiers and pedals; SubZero, which offers guitars, amplifiers, mixers, speakers and audio electronics; Minster, which offers digital pianos; Rosedale, which offers woodwind instruments, such as clarinets, flutes, oboes and piccolos, and Brass Instruments, which offers trumpets, trombones, tubas and French horns. The Company has developed its own e-commerce platform, with multilingual, multicurrency and responsive design Websites covering approximately 19 countries. more »

LSE Price
Mkt Cap (£m)
P/E (fwd)
Yield (fwd)

Low & Bonar PLC is a United Kingdom-based company engaged in international manufacturing and supply of performance materials. The Company's segments include Building & Industrial, Civil Engineering, Coated Technical Textiles, and Interiors & Transportation. The Building & Industrial global business unit (GBU) supplies a range of technical textile solutions for applications in the building, roofing, air and water filtration and agricultural markets. The Civil Engineering GBU supplies woven geotextiles and construction fibers used in infrastructure projects, including road and rail building, land reclamation and coastal defense. The Coated Technical Textiles GBU supplies a range of technical coated fabrics providing aesthetics and design, performance and protection. The Interiors & Transportation GBU supplies technical fabrics used in transportation, interior carpeting, resilient tiles and decorative products. more »

LSE Price
Mkt Cap (£m)
P/E (fwd)
Yield (fwd)

  Is LON:CER fundamentally strong or weak? Find out More »

41 Comments on this Article show/hide all

davidjhill 25th Jun 22 of 41

In reply to post #486446

Altitude (LON:ALT) Not really comparable bestace.

One is an external adviser where they want the option price to be as high as possible to get best deal. Torch obviously felt that these were reasonable stretch targets for the long term so that is bullish.

The other is to internal management, including the CEO, who you want to be incentivised to stick around long term and get well remunerated but only if shareholders also do well. Therefore you'd expect these to be a little lower.

My point is that this current trading year is quite an inflection point if you read the broker revenue forecasts. I have heard scepticism around these numbers. I find it unlikely that management would take an option incentive struck at 105p where targets are clearly dependent on achieving those numbers if the CEO wasn't convinced that this was on track. Given we are a reasonable way into the year I look at this as a bullish signal.

I would be concerned and might agree with your comment had they reduced Torch partners option prices at the same time. That wouldn't sit well for me and would be a red flag.

| Link | Share | 1 reply
Paul Scott 25th Jun 23 of 41

In reply to post #486356

Hi camtab,

Thanks - I monitor all my positions very closely, so I'd already spotted that a US fund (Kinderhook Partners LLC) has been building a stake in Cloudcall (LON:CALL) - currently at 12.1%. Their website is quite interesting:  They seem to be passive, long-term holders in carefully researched companies. How on earth they found CALL, I have no idea!  But as you say, the Americans value growth tech companies very much more highly than we do. CALL's operations in the US are growing well.  I'm hoping that a US tech co might bid for CALL at a substantial premium.

Cannacord (probably Hargreave Hale) are selling down, and now only hold 3.49%. So hopefully the overhang may soon be cleared?

Regards, Paul.

| Link | Share
Paul Scott 25th Jun 24 of 41

In reply to post #486476

Hi Zipmanpeter,
Excellent post, thanks for your thoughts on Cake Box Holdings (LON:CBOX) , very interesting!
Regards, Paul.

| Link | Share
Paul Scott 25th Jun 25 of 41

Thanks for the kind messages about yesterday's report - it's always good to hear about it, when people find my work useful, and helps motivate me! We're all human!
Regards, Paul.

| Link | Share
Gerard88 25th Jun 26 of 41

I would add a small point to your balance sheet comments with regards to stock.  From the figures presented one can see that the stock turnover (based on the product cost of sales, as well as adjusting for 13 months) at the end of the year was 4.04x, but at the end of Feb 2018 it was 3.15x.  The implication of this is that the company has already started to trim the lower margin stock items from its range.

| Link | Share
Bonitabeach 25th Jun 27 of 41

In reply to post #486466


Re: French Connection  Published trades are here: London Stock Exchange.


| Link | Share | 1 reply
Lion Tamer 25th Jun 28 of 41

Thanks again Paul for your ongoing and highly valuable insights.

1pm (LON:OPM)

I've spent the some time today considering my position with OPM (a relatively low conviction holding for me). I'm thinking about if this a good (fixable) profit warning or a bad one (structural)? Here is my (possibly flawed) thinking, being aware that I suspect I've several biases spinning round in my head.

Firstly, this is not a type of business in which I have any deep or unique knowledge, as it is at the fringes of my supposed areas of competence (such as they are).

When I bought, one area of research was evaluating the business model. I made the naive assumption the on-balance-sheet/off-balance-sheet lending model was great because it meant OPM could bag all the on-balance-sheet lending they wanted, and broker the remainder off for extra income. My mistake in hind-sight was to assume customers were queueing to borrow money. Clearly they are not, at least not in high enough numbers to build both short term cash flows from the broking side of the business and the longer term repeatable income streams from their own lending book.

Looking at the cash flows (as at November 2018) and the need to meet their dividend paying aspirations, I suspect they are currently focusing on the broking business in order to support the short term cash needed to fund the cash-flow & dividends. This at the expense of the longer term sticky income. My concern is that they'll end up chasing their own tail, never building a long term repeatable income stream.

Therefore I've sold. The flaws I've identified in my original purchase case include the lack of deep sector knowledge & assumption about how the business model would work out and the weak cash flows. Good luck to those buying or holding.

| Link | Share | 2 replies
Zipmanpeter 25th Jun 29 of 41


If/when you write further on G4M, can you comment on the following having met mgt

1.  "We include our costs of delivery within our cost of sales figure which is a different accounting treatment to some other e-commerce retailers. Delivery costs increased to £9.1m in the period represented 7.7% of total revenue (FY18: 7.3%)."

Thus %GM at other ecommerce retailers, % GM would have been 22.8+7.3% = 30.1% - still not great but sounds much better.  So why not do this?

Actually, I think it right especially in an ONLINE business to include Carriage as part of Gross margin since it is directly related to the cost of selling that specific item vs a shared cost of carrying stock to a store.   

Kudos BTW to £G4M for their transparency to show it at all broken out as also show their % Marketing spend.  I wish others (eg £SOS) would do the same.  Ultimately this is variable in a way that SG&A overhead is not.  (In FMCG, I always measured my Sales&Marketing team on their contribution margin ie Net Sales after price discounts - COGS-Marketing as any fool can cut price or advertise to get sales)

2.  In contrast, for an online business they are coy about returns

For my education how are MOST online companies handling costs associated with returns.  I assume direct cost attributable to a specif order are returned to the product cost ie are handled in % GM but that the overhead cost of an area and people to sort them is in a below gross margin line?

Do you know the level of returns £G4M face for music related items now I understand women's fast fashion can be as high as 50% !  Must be lower - does anyone try out 2 guitars by post? but equally, cost of returns must be significant.  I note in their presentation today (slide 12 Challenges/Actions)

Returns costs increased as international sales increased --> Review Returns policies, and charge for some collections

This infers the cost was significant and underlies why switching as much fulfilment to Euro distribution centres makes sense

3.  Best metric (not cited in results) was slide 15, No of repeat customers which was down in % terms but up in absolute terms from (by eye) about 105K to 150K customers.  If you have 150K repeat customers in a year at ave.  £117/order, you have some sort of a sustainable business.

Note I bought £G4M after their big fall and hope to hold a few years

PS  Note of appreciation to you/Graham/other contributors for my continuing education about how to analyse results.  I worked in a big multi-national and was an MD of several SME's overseas but reckon my financial analysis skills have been more improved here than they were at work!

| Link | Share | 1 reply
wildshot 25th Jun 30 of 41

In reply to post #486596

Many thanks Bonitabeach. With the recovery this afternoon I was wondering if it was just a tree shake. Looking at those volumes (For FCCN at least) it looks like the MMs were trying to get some trades away.

| Link | Share
jonno 25th Jun 31 of 41

In reply to post #486611

Hi Lion Tamer

I must also put my hands up to a lack of knowledge of the sector regarding 1pm (LON:OPM), which has come at a cost. I had assumed somewhat naively as it appears, that there was sufficient demand to allow the company to off the load less attractive business by broking whilst retaining the 'safer' and more lucrative business, thus de-risking the process and earning fees from the former as the icing on the cake.

Lesson for the learning, sold this morning. Fortunately it was a small part of the portfolio. Nonetheless a loss that could have been avoided if I had been more insightful and knowledgeable.

| Link | Share
davidjhill 25th Jun 32 of 41

In a quiet afternoon has anyone done any work on Accrol Group (LON:ACRL) as I think this is turning into a very nice potential recovery play?

First off I admit to buying at 20p so although I am 50% up on my investment in hindsight I think I was in reality a little premature. Whilst I backed new management to turn it around I suspect the risk/reward trade off wasn't the best at the time (ie maybe a flawed investment process from me to work on!).

However, that has also given me skin in the game to pay attention. Recent results were decent, moving back to b/e. Turnaround to put the company back on a sound footing through simplification, price increases and sales has been tremendous but that's all in the past and now we look forward for a view on valuation.

What got my interest was an anomaly between a video interview the CEO did versus broker expectations I have seen. Gareth Jenkins is the ex UK CEO of DS Smith so has a pretty good track record in a not dissimilar space (cardboard packaging versus toilet roll). In the interview he discussed the market dynamics. ie we all need toilet roll, it is a consistent growing market etc. He discussed the fact that no one customer makes up more than 20% of their revenue and that they are supplying all but 2 of the major retailers but are in talks with both of those, so good revenue diversification. But really he talked about the fact that they were already at £140m of revenue p/a and are planning to get to £250m p/a. That's interesting as brokers have pencilled in only £126m for this year and £132m for next and a PE of just 7. So, it feels to me as though there will need to be significant broker upgrades.

Net debt is also coming down rapidly, so a tick there. Biggest risks appear to be FX and raw material cost inflation.Though I believe the latter has been somewhat mitigated through raw material inflation pass through type contracts. Also, given these factors have both been highly negative for the company over last couple of years and moved towards extremes one wonders if we are close to the top of the cost curve now.

All in all I am impressed with the new management. If they can get to £250m over next few years then EPS could hit 12-15p and shares should be several times the current share price.

Anyone else looked at this in detail?

| Link | Share
mojomogoz 25th Jun 33 of 41

In reply to post #486611

Hello Lion Tamer

I hold building in last 8 months or whenever price got close to 40p...obvs should have waited.

Cash to fund growth is a problem and broking on is definitely to improve short term cash at expense of higher earnings. I think the dividend was introduced to seduce shareholders and its backfired. They'd be better not paying it out and focusing on growth...but was strategy to seek to pull out of lowly valuation.

Equity raises have fecked investors off and sunk the multiple. That said they have grown eps well:


This is post dilution from new equity. Current CEO been at company since Jan 2014 (year end is May) as Chairman and then CEO since Jan 2016. 2011/12-14 the company was run by person with legal and risk background (Maria Hampton). 1pm had expanded fast before and thro the 2008 crisis pivoting along the way post listing in 2006/7 ish from being a subprime lender. Previous mgt didn't seem to realise that demand for credit would go up when cos faced stress and they lent like mad thro the crisis. This came home to roost in 2010 and they were punted and replaced by risk/legal manager who did great job stabilising business and getting back as much as the dodgy loans as possible. She massively improved prospective risk lending rules. Can't find out what she went on to do but seems like she came from a non-exec role in time of need and then disappeared afterwards not pursuing exec, guessing,  I think she was never on or wanting the exec path (never director even though called CEO) and that means that current CEO Ian Smith was probably quite active as Chairman from 2014 onwards. 

Revenue growth has continued. For the last year they have drastically turned down unsecured lending on book and that has slow revenue and earnings growth too. 

FY19 looks bit like kitchen sinking. They know they aren't going to please the market so they've put out a RNS dump that was inevitably going to be negative and fast forwarded inevitable integration and tidy up plans and stalled growth to free the cash flow for it. My hunch is that they will seek to surprise to the positive as early as HY20 (end of Nov 2019) and defo FY20 by a mixture of top line and earnings growth due to greater own book lending.

2018 AGM approved an equity plan for this management for the first time. They earn proportionately from 60-110p. That's now the focus of the business and nothing sort term will be done to jeopardise hitting that. At 110p the pay out is 7,900,000 shares. Vesting from 5/7/20 and expire 5/7/21. So a hefty near 8% of the company worth +£8m at 110p. You can be sure that mgt attention is on that and aware of doing what is needed to hit decently into the 60-110 strike range....

That makes me think that mgt is engineering a surprise for FY20 to shift this share price. My guess is a much more upbeat interim trading update come December.

That speculation aside 1pm (LON:OPM) seems a decent business and network. Bit old fashioned but knows how to relate to customer and make money. At 5x earnings and op margin that inhabits 20-30% range this seems too cheap. I believe the downside is quite limited as they earn their corn through lending spread rather than leverage of their balance sheet and in last year they have been even more conservative in their lending.

| Link | Share | 1 reply
bestace 25th Jun 34 of 41

In reply to post #486541

Your distinction between internal and external option beneficiaries feels a bit artificial to me. From the company's perspective they should always want the vesting price to be as high as they can get away with whilst preserving the incentives they are intended to create. That applies regardless of who the option holders are so issuing options at lower target prices for insiders feels to me like an agency problem, i.e. directors looking after themselves.

Furthermore, only one of today's beneficiaries can be considered "internal management", the other is a non-executive director. I really don't get the rationale for giving away half a million options to a non-executive director. It's not like he has a strong track record of creating shareholder value at the other listed companies of which he has been a director.

I don't disagree with you by the way, that this year should see an inflection point for Altitude (LON:ALT).

| Link | Share
Lion Tamer 25th Jun 35 of 41

In reply to post #486666

Many thanks for your comments mojomogoz & jonno. I's great to hear two differing views on 1pm (LON:OPM)

Whilst not yet convinced either way, I might revisit this in November or December (via a note in the diary). If I can find evidence of a strong demand for borrowing, if the economic outlook at the time is positive (bearing in mind the spectre of what 31st October may bring upon us), and if any other research supports it, I might take a small position ahead of any trading updates that might come out a few months ahead of the interims.

| Link | Share | 1 reply
mojomogoz 25th Jun 36 of 41

In reply to post #486701

VG Lion Tamer

I tend to invest a bit contrary and that can get messy so not seeking to persuade but just air my case/views for feedback.

I'd say that demand for loans is not the issue really. They could sell more of them if they wished. The issue suppressing revenue growth is their choice not to fulfil more demand. That's driven by a cyclical credit cycle view and a step off of the gas to allow cash to come through from current book for investment purposes (rather than more equity issuance).

I've just realised that Paul Scott wrote a small snippet on them. I missed that. I believe his POV is flawed:

1) Subprime lender is misnomer and doesn't capture the lending environment for them very well. They lend to small businesses that find it tough to access funds elsewhere more due to size and connections. Big banks ain't interested and don't want personal contact. Bigger businesses will by default have a lower credit risk rating simply as they are bigger....its irrespective of the quality and predictability of the earnings.

2) They make money on spread rather than leverage. Whereas a trad bank with its balance sheet will typically make money on more leverage and less spread. Important to note that this spread is not driven by a genuine credit risk differential but by lack of access to funds for small businesses. I've looked at PCF (LON:PCF) in the past and spoken to CEO....he says they have similar quality client as 1pm (LON:OPM) and get similar spread in response to me saying he used more leverage for less spread suspicion is that they get less spread and apply more leverage.

2.1) There is a great parallel to 2 with payday and non standard finance for consumers. A lot of that lending at very high prices is driven by a the fact the customer lacks access to 'middle class' banking. There is some more credit risk too but its way less than priced. Its a different environment for a lot of reasons so not a perfect read across. I'm relatively expert on credit rating and risk rating stuff as a started a subprime consumer lending business from scratch and did all the credit, reg and consumer interface work to develop the systems (seeking to make 30-80% APR loans rather than 1500% driven by experience of seeing what they do in emerging markets)

3) As a cyclical precaution they have drastically reduced unsecured lending that their balance sheet is exposed to (they'll broke that on). They have also reduced duration

4) 2% provisioning on total loan book is quite reasonable given asset backing for most...unless you believe its a book for crap as they do not have lending discipline. This is what happened to them in 2008 when they were a subprime business...but they survived it as they still made good margin on what they got back

5) They tend to write off anything that has a whiff of bad early and then have a record of making good on some recoveries such that this becomes an earnings/cash positive with write back. This is conservative approach with good recovery aided by asset backing and relationships

6) Note, any lending business that wants to grow a lot tends to need financing. So 1pm have issued a lot of equity but their eps growth has been good.

7) Through cycle I expect the earnings trajectory to be smoother from 1pm than a bank lender in the same downside to those that can grow faster through leverage they create themselves.

I believe that 1pm is quite a safe play if cycle turns down and would have nice growth other side of it. But I stick to my hunch that they are designing a surprise for interims at end of year

| Link | Share | 1 reply
Zipmanpeter 26th Jun 37 of 41

In reply to post #486706


Thanks for note on £1PM and the read across to sub prime/ non-standard (consumer) lenders. I also am interested in such lenders from my time working in emerging consumer markets where a lack of access to cash, low savings and unexpected economic shocks are common

I hold Non-Standard Finance (LON:NSF) which has been decimated recently dropping from >60p in Feb to 35p today.

I believe this is short term blow back from i) its failed takeover offer for PFG ii) FCA comments on Guarantor lending (where I think they are well placed in terms of regulatory compliance, forbearance procedures and affordability checks - their guarantor call rate is well below Amigo for instance iii) concerns over cash disappearing (Libra on Home Credit) but most of all fears of turbulent times following politically induced. The other 2 legs (branch based and guarantor backed) mid-sized mid term lending where they are clear no and no 2 with limited current competition look great, growing rapidly with impairment well controlled.

Non-Standard Finance (LON:NSF) try to argue that "non-standard" specialists are actually counter-cyclical in a recession because although their impairment rates go up so to does the price (ie interest rate)they can charge and so does the volume: as more people become sub-prime and blocked from normal lending routes.

DO you buy this argument for both SME's and does it read across for consumers?

| Link | Share | 2 replies
mlane 26th Jun 38 of 41

In reply to post #486616

G4m are right to point out the difference is CoS treatment. Along with investing I own an e-commerce co and in addition to distribution costs directly attributable sales fees should be applied into CoS. G4m also operate on amazon with typical fees circ 15% of sales and postage, so when comparing bricks and mortar top line margin this needs to be added back. In our co we operate a margin at 35% but if you added back postage and attributable sales fees margins would be into 50%. In terms of returns, well managed e-commerce cos would manage this at product/catagory level to ensure margins at product level take into account returns costs. Personally I like to see fulfillment (out) and returns (in) accounted for in CoS as well but can see the debate either way. Agree with your perspective on music returns particularly as customers review technical details online often after recommendations, so fit/size less of a factor than woman's clothing.
Good Investing

| Link | Share
mlane 26th Jun 39 of 41

In reply to post #486846

In terms of Non-Standard Finance (LON:NSF) the real players (Provident, NSF, S&U, Morses...) are typically recession proof as their customers, processes and default rates are well equipped to deal with income deeps. It is usually the new to market or dabblers which get pulverized during recession and regulatory reviews (Wonga...) as their core business models are about as customer centric as chilli flavoured toothpaste. NSF seems a very well balanced operation which can leverage credit skills/loans platforms across a growing product suite and customer life-cycle.

| Link | Share | 1 reply
Zipmanpeter 26th Jun 40 of 41

In reply to post #486941


Thanks for response. Re Non-Standard Finance (LON:NSF) I intend to hold on as I agree - this is a segment that rewards experienced specialists and NSF's mgt team are that.

I did however undersell another short term depressing factor - the £10Mn costs associated with the failed takeover. The risk here is that may cause lending to be constrained (to free cash to pay advisers - I hope they were success based!) or worse, some king of rights issue or placing.

| Link | Share
mojomogoz 26th Jun 41 of 41

In reply to post #486846

Hello Zipmanpeter

Some points in response. I don't know the answer as I don't know Non-Standard Finance (LON:NSF) well. I did watch them present at Mello South November-ish last year. Can't remember the position of presenter (FD, IR?) but I instinctively didn't trust him when answering questions. That put me off more, having experience in related field I knew the hurdles and felt a little like I might get too distracted trying to dig into NSF as well. I note that their pedigree in the area is great plus being newbies but with prior experience is a nice position as no legacy stuff to come up and bite you.

The risk will revolve around client base and how they have been sold. When a debt goes bad or delayed whether you can get it back depends on client relationship stuff particularly in new regulatory world that curtails debt recovery processes. If you sold at a distance with a high impulsive marketing angle to the sell then when it goes you might struggle to get it back....but that still depends on customers.

In the old days when Wonga was making loads of wonga a significant part of their clients base was what you would call moderately affluent but profligate. These people were targeted customers. This could reach all the way to city professionals who had significant variable remuneration and a tendency to make personal commitments above their basic income level. They's arrive at Wonga after they had taped out their other sources of credit. Basically, these guys might default or rollover and earn lots of fees for Wonga etc but would have a high prob of paying off once flush again.

I think that NSF's business is targeted more clearly to the less affluent by comparison

I haven't kept up with regulatory stuff or controversies but my opinion is that guarantor loans are quite an abusive things all round and that as regulators dig its going to get worse and worse for providers. I think they will so regulated they are hard and expensive to do.

More generally, the FCA are behind the curve on so much that there is a danger to everyone as they catch up. For example, they do not understand how credit reference services that everyone buys (not mandated by regulator but if you didn't they would eat you in effect FCA underwrites business for Experian etc). They do not understand how the data forms an effective trap for the less affluent and effectively justifies putting them in a high cost credit trap...once you're in the data feeds back saying you use high cost (so high risk credit) and there's overlays with other 'incriminating' data such as postcode.

What's going to be quite untested in next recession is what the new forbearance culture means for repayment profiles. Before they could go after you...but now they need to tread carefully and not impossible that FCA issues statement saying they are really watching forbearance as consumers struggle.

The above is a long way of saying I don't know where the equilibrium on regulation will stop. If you know then you can see who wins. NSF is in a relatively good position I'm sure....but whether that is absolutely good hard to probably is but I'd only buy bombed out after a bit of a panic profile event.

I don't think that SME lending is necessarily counter cyclical. I think 1pm (LON:OPM) have taken steps to make themselves reasonably cycle proof. They'll get some payments problems but with provisions at 2% of lending (so near £3m off top of head) and broking on of most stuff that us unsecured they seem in robust position. They'll get payment problems no doubt but high ongoing margins should also buffer. So they don't make more money in a downturn but they do outperform dire expectations

| Link | Share

Please subscribe to submit a comment

 Are LON:CER's fundamentals sound as an investment? Find out More »

About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


Stock Picking Tutorial Centre

Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis