Fairpoint as low as I tend to go.

This is an AIM listed financial stock with a market cap. of around £50 million. It describes itself as a consumer financial services business focused on serving financially stressed consumers. Their business is structured into the following primary business lines in order to serve the needs of this consumer group:

1.   Individual Voluntary Arrangements (IVAs)

2.   Debt Management Plans (DMPs)

3.   Claims Management

You can read about its short history and more details on its business lines at these links from their website. 

I say it is as low as I tend to go, this is in terms of the Market cap. that I look at and in this case also morally as perhaps it is questionable to be making money off of people who are in financial distress. However, they are providing a service to these people and trying to help them through their difficulties. I was attracted to it by the financial metrics which indicate good value with a P/E of 8 to 9x and a yield of 4.5 to 5%. The quality seems OK with ROCE of 26.6% and operating margins of 32.8% according to Stockopedia. On this same site it has value and quality ranks of 97 and 96 (100=best) and an overall rank there of 98, so top decile in some of the important areas and overall. Momentum is the only lower score (67) due to the flat share price (discussed later). Check out the link to Stockopedia above if you are not a subscriber and you would like to learn more about their ranks and get a two week free trial.

So the results today were described as in line by the Company. The sales at £28.4 million were behind forecasts of £30.8 million while adjusted basic earnings per share were 15.03 pence (+12%) v 14.5 pence (F) and the dividend came in at 6 pence +9% in line with forecasts. They have made some acquisitions from cash and cash flow to diversify the business by buying some debt management portfolios and expanding into legal services. Despite this the balance sheet still show cash of £2.8 million at the year end. 

The shares have traded largely sideways for the last six months as other AIM and small cap stocks have soared. So I am hopeful that this set of in line results might lead to a reappraisal and I am happy to collect the near 5% yield in the meantime. However, I understand if it is not to some peoples tastes and that might also explain the flat share price? 

Finally, as a rider to the £50 million lower market cap. limit I set - I only tend to go below that if I find the value case and or the quality compelling as in the case of Electronic Data Processing (EDP) which I have written up in the past on Stockopedia. As I like the quality of software businesses, with their high recurring revenues, I have uncovered another interesting stock in that sector, although sadly it is not as cheap as EDP, but it does offers similar high quality and more growth. You'll be pleased to hear it arguably operates in a more ethical space than Fairpoint - so if this isn't to your taste then check back tomorrow for an alternative high quality but more expensive idea, but as I always say you pay your money and take your choice.