Non-Standard Finance

Description

Non-standard Finance is a consumer finance business which offers financial services to the significant part of the UK population that is unable to access mainstream products.

The business was formed in 2014 and the following year it raised £100m in an initial public offering (IPO), in order to acquire a presence in a profitable and fast-growing niche of financial services. Later that year it acquired the home credit business, Loans at Home, and then, in 2016, it raised further capital to acquire branch-based lending business Everyday Loans, including it guarantor loans brand Trusttwo. In 2017, it acquired George Banco, further bolstering its guarantor loan offering.

The Woodford Equity Income Fund has held an investment in this company since Non-Standard Finance’s IPO. The Woodford Income Focus Fund acquired a stake in the business shortly after the fund’s launch in 2017.

Non-Standard Finance made a firm offer for Provident Financial, in a bid to create a leading UK non-standard finance provider, with strong positions in credit cards, home credit, branch-based lending and guarantor loans.

Investment case summary

Approximately one-fifth of the UK’s adult population is excluded from mainstream finance because of a poor or limited credit history. That equates to a target market of around 10 million people for a business like Non-Standard Finance.

The business has an experienced management team, with a strong track record of successfully managing non-standard credit franchises. Its founder and chief executive, John van Kuffeler, presided over a long period of profitable expansion for Provident Financial in the 1990s and early 2000s.

At IPO, the business had a clear plan to build a presence in a profitable and growing market that management clearly knew well. Each of its three chosen sub-segments – branch-based lending, home credit and guarantor loans ­– has considerable growth potential, high margins and the ability to deliver attractive long-term returns. Much of its lending is branch-based, which is unusual in this part of the market. This means a higher cost base, but the face-to-face nature of its customer interactions tends to lead to better underwriting decisions and, consequently, higher returns.

We have been pleased with the progress that management has made in delivering against its IPO plan, initially through sensible, disciplined acquisitions, and subsequently through careful capital investment. Having built a solid platform for future growth, we are confident Non-Standard Finance can now deliver very attractive long-term returns to investors.

Ask a question about our investment in Non-Standard Finance

Fund exposure
Income Focus Fund 2.32%
Equity Income Fund 0.64%

As at 28 February 2019

Segmentation
Geography United Kingdom
Industry Financials
Themes UK domestic exposure

Source: Woodford

Share Price

Market Quotes by TradingView

Commentary

Firm offer for Provident Financial

Late last week, Non-Standard Finance made a firm offer for Provident Financial, in a bid to create a leading UK non-standard finance provider, with a comprehensive suite of capabilities. The combined entity will have strong, typically market-leading positions in credit cards, home credit, branch-based lending and guarantor loans. The offer is supported by more than 50% of Provident Financial shareholders, including Woodford.

We are supportive of this transaction because we believe it represents a positive step for both businesses. The deal will bring in the more experienced Non-Standard Finance board and management team to run the combined entity. Led by John van Kuffeler, who presided over a long period of profitable expansion for Provident Financial in the 1990s and early 2000s, we have confidence in this team’s ability to accelerate the company’s turnaround and drive value for both sets of shareholders.

The transaction brings potential revenue, cost and capital synergies, not least by rationalising the cost base at Provident Financial’s Home Credit division, and in reducing Non-Standard Finance’s funding costs. There are also significant cross-selling opportunities across the combined entity, which will have market-leading businesses with exposure to four profitable and growing segments of the non-standard finance sector.

Stephen Lamacraft
25 February 2019

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address 9400 Garsington Road, Oxford OX4 2HN.

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

© 2019 Woodford Investment Management Ltd.
All rights reserved.

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