The group announced interim results on the May 23, reporting significant progress across the business as it builds scale while at the same delivering credible financial and operational performance. These results were achieved despite the twin constraints of upfront capital investment and equity capital raised previously, nevertheless, PCF continues to grow according to its strategic plan.
The headline financial performance was held back by the investment made to date and by the dilution from new equity. Profit before tax for the first half of 2018 (1H18) was £2.1mln, an increase of 20% year-on-year (yoy), which was less than average asset growth, and profit after tax was £1.65mln, an increase of 20% also. Earnings per share, meanwhile, were affected by the effective increase in share capital and weighted average shares in issue (+24.7%) and were therefore largely unchanged at 0.8p. The group announces final dividends only.
In anticipation of becoming a bank, PCF invested upfront the equivalent of c.£2mln of annualised cost that affected these interim financial results by c.£1mln. We are not inclined to adjust for this cost to determine an adjusted earnings figure; rather we appreciate in our forecasts the future operational gearing that can be delivered from operating a significantly greater portfolio of loans from the same relative base. It is this gearing that gives us the assurance of better earnings to follow.
While the financial results were held back, the strategic performance was excellent. Portfolio assets increased 40% yoy, or 23% since the year-end. Retail deposits from a standing start have grown to £108mln in eight months. New business originations across both Consumer and Business loans nearly doubled to £69mln as the group grows into prime markets. These results are entirely consistent with what management set out to deliver and the group remains on target to grow portfolio assets to £350mln by 2020.
The priorities for the remainder of 2018 remain the same as before: (1) Increase lending into the prime market and expand the range of services; (2) Maintain high levels of customer and broker service at much higher volumes; (3) Further improve the efficiency of the banks treasury and savings structure; (4) maintain momentum towards the portfolio target of £350mln by 2020; (5) harness the power of scale and deliver the operationally geared benefits. We consider that these all remain on track. Our new price target is 55p per share.