Non Standard Finance (lon:nsf)
NSF – NSF/PFG Takeover.


ItemCurrent PeriodPrevious Period
Adjusted Earnings£36m£24m
Adjusted EBITDA
Statutory Profit(£2m)£2m
Adjusted Profit£12m£2m
Total Debt
Net Debt£259m£197m
Title: NSF – NSF/PFG Takeover.
Company: NSF - Non Standard Finance
Share Price Then: 50p
Author: Ian Smith
Date: Tue 30 Apr 2019
Comments: If I were a Non Standard Finance shareholder I would be applauding the attempted takeover of Provident Financial Group, from an NSF perspective it is a great idea.

If I were a PFG shareholder I expect that I would be supporting the PFG board and the idea that this is a terrible deal.

As PFG needed a share issue to stay in business it is reasonably safe to say that they have made a mess of things recently, the problem is that the current board is mostly new and has little responsibility for the current situation.

The NSF offer makes some reasonable comments about the board’s experience in the bad credit risk market and the share issue but in my view over eggs the blame.

The NSF suggestion that PFG are moving too far away from direct agent contact, loan payment and collection to fully automated transactions is a much stronger argument. If you are lending to the sub prime market then you have to accept that many of your customers do not have bank accounts that are well suited to DD/CDA as there may not be any money in them.

The problem with the NSF proposal is that they seem to want to go back to the old way of letting the agents make most of the lending decisions which in my view is going to fail FCA regulation fairly soon.

With hindsight I feel that PFG went too far in replacing the self employed agents with fully employed and managed Customer Experience Agents. I think that PFG agree and are trying to find the correct balance between self employed agents working when they and the customers want and responsible lending.

I am also troubled by NSFs statement that they are looking to introduce an updated version of the Repayment Option Plan, in my view ROP was a product that had very little or no benefit for nearly all Vanquish card holders but was a great revenue raiser.

Overall I get the feeling that NSF haven’t quite caught up with the idea that subprime lenders are getting more and more scrutiny. This is where their management’s experience in the industry works against them.

Looking at NSF itself I get even more troubled, the 2018 full year results are worrying, there is a lot of bad debt, 21% of revenue from branch based lending, 32% of revenue from home based lending, they are more cagey on the Guarantor loans bit of the business.

Then there is a massive no-no from my investing perspective, a strong emphasis on the company’s own preferred accounting methods and a huge difference in profitability between those and the statutory reporting. For 2018 the Reported Profit was a £1.7 million loss but an £11.6 million profit using their preferred accounting methods.

Finally if the takeover fails I would also be concerned by the trading volume of NSF shares if I had just bought in because of the PFG deal and wanted to get out.
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