Time Finance LON:TIME the AIM-listed, alternative financial services company hasn’t seen any unexpected moss growing on it as it powered through 2023, maintaining the momentum that it carried into the first months of 2023 throughout the whole year.
The lender published its interim results to end-November 2023 earlier this month, reporting record gross lending up 24% year-on-year to GBP188.6m for the period, with its own-book origination up 29% y-o-y to GBP47.3m. As previously reported Time Finance has set itself ambitious targets of doubling its gross lending book from its June 2021, post-Covid resumption level to GBP230m by 2025.
James Roberts, chief financial officer, speaking to The Armchair Trader said: “We’re confident of hitting if not exceeding that target […] if we just keep on doing what we’re doing at the moment, and continue to write the same level of [loan] business that we are now, we should achieve that target.”
He continued: “But we hope to surpass that –UK SMEs have remained resilient, despite the doom and gloom. Whilst market conditions are challenging, they are still presenting opportunities for alternative lenders like Time Finance.”
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Time Finance revenues and profits up
The Bath-based financier reported revenue for the period had increased 19% to GBP15.7m when compared to the same period in 2022. This contributed to a 35% rise in profit before tax y-o-y to GBP2.7m which matched earnings per share, which likewise was up 35% to 2.33p/share.
The company has also kept a watch on bad debts, despite writing a lot more business, with arrears maintained at 6% of total lending book. Given the nature of its business – in that its loans are paid back over a defined period its future revenues are quite visible with unearned income “[…] basically interest that is due to us on, for example, a lease, that hasn’t fallen due yet,” explained Roberts, up 26% to GBP23.9m.
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The company has made a conscious decision to reorganise its business post-lockdown and simplified its structure, focussing on B2B lending only. As previously reported the company offers a range of business financing products including: Asset Financing, Invoice Finance, Business Loans and Vehicle Finance, however Time Finance has latterly focused specifically on Hard Asset and Invoice Finance.
The company’s Asset Finance allow companies to finance the purchase of capital machinery over time, spreading the cost of repayments over the term of the loan rather than as just one lump-sum. This allows the financier to repossess the item if the loan is not cleared.
Invoice Financing allows a company to access the money it is owed before the invoices become due, using the invoice as security, and paying the borrower a proportion of that invoice up-front, usually within 24 hours of issue – as opposed to waiting 30, 60 or 90 days for payment. The customer can then use the money for cashflow or investment purposes immediately. Time Finance offers a credit control service through this product.
Both products have experienced robust growth with Hard Asset financing up 23% in the period to GBP76m and Invoice Financing up 9% to GBP61m over six months. They are complementary products with very different profiles.
Own-book lending creating alternative revenue stream
The company has also focused on building its own-book lending, with its Hard Asset and Invoice Financing coming off its own-book. The current ratio of own-book lending to broke-on deals is 98:2. While focussed on being an own-book lender, Time Finance does retain the ability to broke-on deals where appropriate, enabling it to optimize business levels through market and economic cycles. The company prioritises own-book lending as it can generate higher margins from its own-book.
Roberts said: “We don’t intend to get to 100% own-book lending, as we still appreciate the odd one or two deals we pass on, because they are too big for us, or have the wrong risk profile, as they create a nice alternative revenue stream, so I anticipate we’ll stick around the 98% level.”
The company has made some key hires, and this has improved its credit profiling and collections, and has helped the lender maintain a low loan failure rate despite the difficult economic conditions. The Hard Asset and Invoice Financing divisions only have arrears of 2% and 3% respectively. Roberts said: “As we went through the [Covid19] pandemic, arrears spiked up to about 20%. After we came out of lockdown this fell back to around 10% and has subsequently fallen to about 6% and stayed there [for about eighteen months]. This is primarily due to the better quality of the book and because we have recruited more experienced staff.”
An opportunity for smaller lenders
Although cognisant of the macroeconomic picture, Roberts noted that in some ways a worsening economic situation could play into Time Finance’s hands: “Yes, there could be a demand contraction at sector level and industry level,” Roberts said, “but in a downturn the traditional larger lenders tend to tighten their belts faster and withdraw from the market quicker. But what this means is that there is going to be more opportunities, and businesses will start to come to us.”
Broker, Cavendish has set a target price for Time Finance of 71p – a 95% upside from where the shares are currently trading. Andrew Renton, director of research for Cavendish said: “Time looks extremely cheap, trading on an FY25E P/E of 7.1x and FY25E P/TNAV of 0.8x. With the sustained period of strong performance through a rising rate environment, we believe that growth will continue or even accelerate in what should be a more benign future environment and as a result we have increased our one-year price target from 47p to 71p.”
Time Finance was trading at 38.4p on 30th January. The company’s shares are up 63.4% over one-year, with prices ranging between 22p and 41p over a 52-week period. The company has a market cap of GBP35.6m.
Bridgewise, the AI broker, has uprated Time Finance from ‘Hold’ to ‘Buy’, saying: “Time Finance had several impressive financial metrics that should make them more attractive than their peers going forward. Specifically, their growth and value factors indicate a well-planned and balanced effort, which is generating exciting growth. There should be significant upside potential for the stock looking forward. We therefore give Time Finance a total score of 90 out of 100 and a ‘Buy’ recommendation.”
