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Read on to see an article posted on the OMG blog on 6 December 2017:

Bank on PCF

Private & Commercial Finance (LSE: PCF) launched its own bank in July. This will provide an important source of finance that will enable the finance provider to grow much faster than it has been able to previously.

Bad debts were 0.5% of its lending last year and PCF intends to concentrate on prime lending following the opening of the bank. The cost of the deposits will be lower than the current lending facility and enables PCF to make money on prime lending even though the interest rates it charges will be lower than for its existing business.

PCF is targeting a lending portfolio of £350m and return on equity of 12.5% by September 2020 – achieved organically. Longer-term, management believes a portfolio of £750m could generate a return on equity of 17.5% but that will require acquisitions.

There is also potential to enter additional finance markets backed by growth in the bank deposits.

The share price has already doubled since our original recommendation but there is plenty more growth to come.

The shares are trading on nine times prospective 2018-19 earnings with significant growth to come in the following years. Long-term buy.

Buy Now - £72.60/year


PCF’s core business is the provision of finance to car buyers and businesses acquiring vehicles and equipment. It has not been a smooth progression but PCF has grown substantially in its two decades on AIM.

It took a few years but PCF gained its banking licence last December and launched its bank in July.



The most important thing this year was the raising of £10.5m from a placing and open offer at 25p a share, which was at a small discount to the market price at the time. This provided the cash and financial liquidity that the bank required, following the gaining of the banking licence last December. Cash is also required for IT investment.

The bank had received £53m in deposits by the end of July 2017. Opening costs, though did hold back profit in 2016-17.

Stripping out those £1.37m of costs, pre-tax profit improved from £4m to £5m in the year to September 2017. Most of the growth was in the business finance division. The dividend was increased by 90% to 0.19p a share and it could double over the next two years.

There were £145.7m in loans to customers in the September 2017 balance sheet. The bank debt has been cut from £103.3m to £77.1m.

The return on equity fell from 12.9% to 8.7%, due to the fundraising in the second half, but it is expected to return to 12.5% based on a target portfolio of £350m in 2019-20.

A modest profit improvement to £5.2m is expected this year but with everything fully up and running it should jump to £8.5m in 2018-19 and £10m in £10m in 2019-20.

Buy Now - £72.60/year

Trading strategy

This is a transformational year for PCF and the next three years should exhibit strong growth making the shares a long-term buy.


Original recommendation: 13.5p/15p


Private & Commercial Finance (LSE: PCF)

29.5p (28p/31p)

Mkt Cap £62m

Next Results: Interims, June

Buy Now - £72.60/year

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