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Daily Grime - Non-Standard Finance (NSF); Kingswood Holdings (KW)

ByJeremy Grime
Published 15/11/2019, 08:08
Updated 09/07/2023, 11:32

  • Urban Exposure (LON:UEXU) responds to Tchenguiz’ recent proposal to spin out the management company saying it has received other proposals “along with other value enhancing opportunities” which it is considering.

    • Non-Standard Finance PLC (LON:NSF) – Warning and CFO Change

    Share Price 33p

    Mkt Cap £102m

    Conflict Disclosure: No Holding

  • Trading Update Operating profit is expected to be 10-13% lower than previous expectations on the back of slower trading in branch based lending (4-5%) and a step change in provisioning on the branch based and guarantor loans business due to the macro environment. Delinguency rates however are reported to be steady or have improved form H1 2019. Home Collected credit is performing well as the impairments reduce with a shortening of the loan book duration. Loan book growth targets are being revised down and impairment targets are being revised up in branch based and guarantor loans but down in Home Collected Credit. The CFO is standing down after Miles Cresswell-Turner standing down last month.

  • Estimates Adjusted EPS of 5.6p for the year to Dec 19 is likely to come down by 10-13% in line with the statement. The adjusted PBT number was expected to be c £21.7m per downgrades but the statutory number is still a loss of c £14m. The guidance is for a 50% payout ratio so the dividend estimate looks likely to reduce also.

  • Valuation PER 5.5X, Yield 8.9% . The NAV is £181m, but the tangible NAV is £49m.

  • Conclusion The second director leaving may be a function of the incentive scheme expiring in March 2020 out of the money. With shareholders likely to be asked to re incentivise management it seems possible that a corporate solution may be found instead. The shares are cheap on an earnings basis but are still 2X tangible book value. There may be upside on a corporate solution but bidders are unlikely to be generous.

    • Kingswood Holdings (LON:KWG) – Note

    Share Price 19p

    Mkt cap £40m

    Conflict Disclosure: No Holding

  • Note I don’t recall seeing a 48 page note written on a £40m market cap loss making wealth manager before. Pollen Street have a £40m convertible financing facility exercisable at a discount (16.5p) which is exercisable to fund acquisitions at Pollen Street’s option before December 2023. There is a make good agreement whereby the company is underwriting that Pollen Street will double its money to 33p per share and receive this in cash, which would effectively require a sale of the company. In the event of this not happening Pollen Street are fully secured on the assets of the company. Paragraph 4.6 of the document on 12 September for those interested.

  • Effect I am confident that no institution would invest on the basis of underwriting a private equity firm to double their money on acquisition as yet unknown. However, on the back of this note yesterday there was notable retail volume yesterday. The trade press carried headlines such as “consolidator Kingswood trumps horn over “undervalued” share price.”

    • View I suspect that retail investors may not be aware of the significant risk of losing 100% of their money in this stock, and I suspect such a structure would not be permitted on most markets. However, AIM companies are regulated by their Nomad. And with all those fees on offer for acquisitions and a possible sale of the company they are conflicted. It highlights the worst of AIM, which is bad for all participants.

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