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Buy Non-Standard Finance (NSF) says VectorVest. Despite solid progress, the growth opportunity is still in its infancy

UK-based Non-Standard Finance (NSF.L) specializes in the provision of non-standard consumer finance sector. NSF operates through four divisions: Central, Loans at Home, Everyday Loans and Trusttwo. Loans at Home provides home credit and serves approximately 98,000 customers, while Everyday Loans provides unsecured consumer loans on a face-to-face basis to approximately 37,000 customers from some 40 branches across the UK. Trusttwo provides guaranteed loans in non-standard finance sector, serving approximately 12 million UK adults who are not served by (or choose not to use) mainstream financial institutions.

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A solid set of FY results on March 3rd 2017, revealed normalized revenue, (including part contributions from acquisitions), of £81.1m (2015: £14.7m) and normalized operating profit of £13.8m (2015: loss of £0.5m). Strong loan book growth across all divisions since acquisitions resulted in a final dividend of 0.9p per share (2015: nil) making a total dividend for the year of 1.2p per share (2015: nil). NSF updated on trading again on May 9th 2017, and said trading performance since the results had been in line with management expectations. Loan book growth continued into Q2 at Everyday Loans, with twelve new branches planned for 2017, while Loans at Home saw steady improvement in the quality of its loan book.

NSF shares hit a year low of 50p in March 2017, at the time of the FY results, and at this point the numbers (outlined above) flagged up a series of indicators across VectorVest metrics. These included the VectorVest GRT (Earnings Growth Rate), which reflects one to three year forecasted earnings growth in percent per year, and currently shows forecasted GRT for NSF of 47.00%, which VectorVest considers to be excellent. Also the VST -Vector master indicator that ranks every stock in the VectorVest database, logs NSF at 1.40 – again excellent on a scale of 0.00 to 2.00. From a valuation standpoint, VectorVest logs a current rating of 116p per share, indicating NSF is significantly undervalued at its current 70.5p.


The chart of NSF is shown above. The green line study above the price reflects the VectorVest calculated value of the share while the blue line study shows earnings per share (EPS) growth over the past 9 months. The share charted a double bottom between January and April 2017. NSF.L then broke upwards through the high, between the lows, defining the double bottom formation. Since this break the share has retreated and tested the high of the double bottom which is bullish. Since this test the share has charted a symmetrical triangle continuation pattern and a break of this pattern (which looks imminent) should see the share move quickly to around 95p.

Summary: Up to March 2017, NSF had yet to show investors how well it had integrated acquisitions Loans at Home, Everyday Loans and Trusttwo. Normalized operating profits and revenues, and the dividend for the year showed the extent of the progress and the confidence of the management team in the business model, while the share price performance since the announcement clearly illustrates a consequential market re-rating in progress. Now, with the May trading statement providing evidence of further progress, VectorVest believes the growth opportunity at NSF is still in its infancy, and while not without an element of risk, rates the shares a BUY.

David Paul

June 13th 2017

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