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Daily Grime: DWF Group (DWF); HAT

ByJeremy Grime
Published 18/11/2019, 08:44
Updated 09/07/2023, 11:32

DWF Group PLC (LON:DWF) – Trading Update

Share Price 125p

Mkt Cap £376m

Conflict Disclosure: No Holding

  • Trading Update H1 to October will show 10% revenue growth, largely organic and a 16% reduction in net debt. International and connected services showed 29% and 18% growth respectively and 5% from Insurance and Commercial services. H2 pipeline is robust and there is a pipeline of carefully chosen M&A targets.

  • Estimates Last year the company delivered £272m revenue and forecasts appear to anticipate £312m for the year to April 2020, which is 15% growth, compared to 10% growth achieved in H1. When last year’s results were announced in July the house broker downgraded forecasts so this upbeat statement looks like it will be accompanied by a downgrade, which is a shame to have two downgrades in the first year post IPO.

  • Valuation PER 11.7X, yield 5.7%.

    • Conclusion. The lawyers are starting to establish themselves an upgrade and downgrade stocks. Knights (19.8X PE) and Keystone (36XPE) look like the upgrade stocks while Ince Group (5X PE) and DWF (11.7X PE) look like the over optimistic stocks. Gateley is the reliable, if slightly dull one ( 11.5X PE) while RBG makes it numbers by selling cases (11.9X PE). I suspect Gateley and Knights may be the outperformers.

    H&T Group Plc – FCA intervention

    Share Price 19p

    Mkt cap £40m

    Conflict Disclosure: No Holding

  • FCA Review The FCA is investigating H&T’s affordability process for its High Cost Short Term Credit, which is the unsecured lending business. As a result the group has ceased all unsecured lending temporarily. A Skilled person review is being carried out, which will inevitably carry a one off cost. The review will go back 6 years to determine whether redress may be payable. Because the loan book has been growing over 6 years the average loan book has been £3m over that period.
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  • Impact The personal loan book was £18.4m ay June 2019 and the annualised revenue margin on the loans was 116%. At the gross profit level this accounted for 25% of profit in H1 2019, but the proportion of revenues in the High Cost Short Term Credit segment is 4%.There will be customer redress to pay, one off skilled person review costs and the loss of revenue from ceasing lending. The company states it expects to pay redress from existing resources.

  • Estimates It would appear that the review amounts to a comparatively small part of the loan book. This year PBT is estimates to be £17.6m and this will be impacted substantially by the cessation of unsecured lending, before we consider the costs of redress.

    • Conclusion The shares could fall 20% on this. Just when things were going so well, with a strong gold price. Note that Ramsden’s don’t do unsecured lending. The market has always been cynical about the unsecured loan book and it has proved to be right

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