I introduced this one in a post on the 15th January 2014 when they were trading around the 1700p mark. They have reported their final results today which are slightly ahead of forecasts at the Turnover £1078.1+10% v £1074(F), adjusted eps 112p +11.6% v 111.2p(F) and dividend level 85p +10% v 84.4p(F).
The Vanquis Bank was the strongest feature with profits there rising by 59.5% as credit standards have remained tight and the business continues to generate strong customer growth (+22.2%) and margins through developing the under-served non-standard credit card market. Good progress is also being made in their repositioning of the home credit business as a leaner, better-quality, more modern, high-returns business whilst the Satsuma online instalment lending product has apparently made an encouraging start following its launch in November 2013.
As expected they invested £7.6m into starting up a credit card business in Poland and expect a similar run rate of losses in the coming half year. This continues their history of building business (such as Vanquis Bank) on the back of the cash flows from the Consumer Credit Division (CCD). Talking of which the profits on that side of the business were down by £20.4m or around 16.6% as customer numbers and receivables declined and impairments increased. However the repositioning of the home credit business as a leaner, better-quality, more modern, high returns business is progressing well. In particular, the development and roll-out of the smart phone and tablet apps that support the step-change in productivity and compliance across the agent and branch network is apparently fully on track and expected to be substantially completed in 2014. The credit quality of the receivables book is also improving through a combination of tighter credit standards and early benefits from the standardisation of collections and arrears processes. The first phase of the cost reduction programme implemented in July 2013 delivered savings of £10m in the second half of the year. The second phase was successfully completed in December 2013, taking the total headcount reduction in 2013 to 520 or 17% of the workforce, and securing further savings of £26m in 2014. So the reshaping and shrinking of this cash cow part of the business continues.
Meanwhile they say the early results following the launch of Satsuma, CCD's online direct repayment loan product, are encouraging and fully confirm the potential of a business capable of delivering the group's target returns. The capability is being built to support a faster roll-out from late 2014. So sounds like they are ramping up the growth there after a successful start and continuing their overall strategy for CCD which involves updating the home credit business and focussing on returns as opposed to growth whilst investing in broadening the customer and product proposition through Satsuma in the online instalment lending segment of the non-standard market.
On the finances while this one remains geared to the tune of 3x that is nothing like as scary as the 20 to 40x the banks used at the peak in 2008 and compares to a banking covenant of 5x. They are also funded through to their expected peak requirements in 2017 and have recently renegotiated their facilities at a lower all in rate.
In conclusion it seems like an in line set of results as expected and a continuation of the strategy to grow the Vanquis Bank in the UK and Poland on the back of cash generated by a more efficient CCD home collected credit division. The shares are up by about 10% since I last wrote on them in a sideways market. This leaves them on a P/E of around 15x 2014 earnings and around a 5% yield with growth of both these metrics expected to be up by around 13 to 14%. So a 4.5% historic yield (2.9% on the final dividend) with forecast growth of 14% still seem good to me so happy to hold this one.