Time Finance LON:TIME the AIM-listed, alternative financial services company published its interim report for the six months ended 30th November 2022.
The company, which it has highlighted itself, had a tough 2020-21, and saw its loan book contract during the first and second Coronavirus lockdown. However, since the economy has emerged from the Covid-19 pandemic, Time Finance’s loan book has bounced back.
In the results release, Time Finance reported that its own-book loan origination was up in 1H22/23 by 27% to GBP36.6m compared to the same period last year. In a nice bit of synchronisation the company also reported its gross lending book up by 27% to GBP152.7m as at 30th November 2022.
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This correlated with a revenue increase of 12% to GBP13.2m, up from GBP11.8m for 1H22. Lending has been profitable – in a time of rising interest rates, this has been a familiar theme in the financial services sector – and Time Finance reported profit before tax up 67% to GBP2m.
The lender said that it’s December trading was positive and expected that its final results would be ahead of market expectations with a minimum profit before tax of GBP3.2m.
Time Finance opened trading this week (30th January) at 22.05p. The company has offered a 4.8% year-to-date return, a -11.5% one-year return with its shares ranging between 15p and 26.9p over a 52-week period. The company has a market capitalisation of GBP20.6m.
Deshe Analytics said: “Time Finance’s financial results from 2Q22 demonstrated decent performance but will likely only help Time Finance remain on par with its peers. We do believe, though, that macro-related market conditions will influence its performance more significantly than its individual results. We gave Time Finance plc a 63 rating and a ‘HOLD’ recommendation.”
B-2-B focus
The company operates in the business-to-business segment, offering a range of business financing products including: Asset Financing, Invoice Finance, Business Loans and Vehicle Finance. Based in Bath, Somerset, the company has been a constituent of the AIM index since August 2013.
Speaking to The Armchair Trader, chief executive, Ed Rimmer explained post-2008 there was a bloom of new alternative finance companies that came to the market in the wake of the financial crisis, in both the consumer and B-2-B space.
In the following years the alternative finance sector was a mixed bag of results. On the consumer front the headlines were filled with stories of so-called payday lenders offering extortionate loans and aggravating Britain’s household debt crisis. Big names like Wonga pushed themselves to the foreground of the financial services landscape on the back of major sponsorships and advertising, all the while receiving criticism from politicians, religious figures, and civil society for ‘predatory lending practices.’
Wonga collapsed into administration in 2018 and after Grant Thornton wound the company down, creditors were offered 4.3p in the pound as a final settlement. As previously reported Amigo Holdings LON:AMGO, another sub-prime lender set up in 2005 is currently trying – unsuccessfully – to recapitalise its business after its loan book collapsed following a mis-selling scandal. Subsequent to these high-profile fall-outs, the FCA has started to monitor the sub-prime sector more closely staring that: “[it] had acted to ensure that the standards expected of the industry are upheld, which includes the need for firms to only lend to customers who can afford to repay.”
Secured lending
Time Finance, by contrast, is wholly-focussed on just the B-2-B and prioritises secured lending. The company’s Asset Finance allow companies to finance the purchase of capital machinery – be it ‘hard assets’ like earthmoving equipment used in construction, or ‘soft assets’ such as office furniture or computer software – 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.
Time Finance also offers vanilla business loans of between GBP50,000 and GBP500,000 that are secured against property, with short-term and long-term repayment schedules. To complement its offering, the company also has vehicle and fleet financing products.
SME lifeblood
The SME sector accounts for around 60% of employment in the UK, and half of the country’s turnover. In many ways the SME sector is the lifeblood of the economy and has been core in the UK’s recovery from the Covid-19 pandemic.
According to the Federation of Small Businesses, at the start of 2020 there were nearly six million small businesses, with SMEs accounting for 99.9% of the business population. At the height of the pandemic the need for financial support for small businesses surged. This led to record lending to SMEs in 2020, rising to GBP54bn in the first nine months of the year, as 1.5 million businesses drew on government-backed loans and schemes.
Rimmer noted that Time Finance did experience some disruption to its operations during the Coronavirus pandemic, specifically because of the glut of state-sponsored business support that flooded the market through products like Bounce Back Loans. This was reflected in both the share price, which fell as low as 12.5p in March 2020, and its gross lending book, which declined to around GBP115m in June 2020 and was down to GBP112m in July 2021.
Strategic review
Although this was expected, due to the sudden influx of capital into the SME sector, Time Finance initiated a strategic review in which the company “upped the curve in credit quality,” explained Rimmer with a view to becoming a nationally recognised SME funder, more than doubling its gross lending book to GBP250m, achieving profits organically well in excess its 2019 pre-Covid levels and significantly strengthening its balance sheet with focus on own-book lending.
Andrew Renton an analyst for Cenkos, the broker, commented: “The strategy is paying off from targeting larger and secured loans primarily from the invoice financing and hard asset lending divisions.”
He continued: “The greater proportion of secured loans has contributed to net deals in arears remaining very low at 6% (H1/22A: 9%). The group is also focused on expanding its lending product offering and improving its IT infrastructure to boost efficiency and support the business as it scales up.”
Cenkos rates Time Finance as a ‘Buy’ stating: “…Time is currently trading on a c0.5x P/TNAV multiple compared to the 1.7-2.0x multiple seen in 2018 pre-COVID. P/E multiples look very low at just 5.2x FY24E earnings, which we believe could double once FY24E profitability comes into sight and as management continue to deliver on their strategy.”
Truss budget
2022 was a tumultuous year for businesses in the UK – especially the SME segment – as the Truss mini-budget in September sent financial markets into turmoil and borrowing rates for consumers and businesses spiralling upwards when the Bank of England intervened to deal with the fallout of the budget and try to control rapidly appreciating inflation rates by raising interest rates and buying UK gilts to stabilise the bond market.
The mainstream banks reacted immediately, raising product interest rates on loans and mortgages, and raising their affordability criteria, putting a stranglehold on credit markets and starving businesses of lines of funding. With the UK economy in recession – a state that it will remain in for the rest of the year, according to Office of Budget Responsibility – the prospect of further interest rate hikes as inflation persists and the cost of living rising at its fastest pace in 40 years as energy bills and food price soar, financial burdens are mounting. Compounded with a shrinkage in labour markets, forcing companies to pay their staff more to retain them, businesses are under multiple pressures and need access to finance to get them through the storm.
It is at this inflection point that Time Finance thinks it can make a difference. The company has been disciplined and systematically built up its own-book financing. Its flexibility is attractive to potential borrowers in the SME, but rates are high for some products. However Rimmer said: “[For example]…our clients from the invoice finance are paying about 3% above base rate, which I think is quite reasonable.”
Own-book lending
Rimmer said: “Own-Book deal origination is a key performance indicator for the group. Pleasingly, in the six-month period to 30th November 2022, this origination amounted to GBP36.7m, an increase of 27% when compared to the six months to 30th November 2021. This increase has helped contribute to the group’s gross lending book growing to record highs. As at 30th November 2022 it stood at GBP152.7m compared to GBP120.5m twelve months earlier. An increasing own-book lending portfolio is key to [our] strategy as it underpins future income generation and profitability and, in turn, the inherent value of the balance sheet.”
The company has tried to stay competitive with mainstream lenders, but given the area it is operating in – namely companies that aren’t able to access mainstream financing, or are not happy with the lending criteria or flexibility from the high-street banks – there is a higher credit risk, hence the risk premium.
The company has kept a cap on this. Time Finance’s Net Deals in arrears was down to GBP8.7m from GBP10.5m in November 2021. James Roberts, the lender’s CFO said: “We’ve avoided a race to the bottom [with some competitors having very low loan acceptance rates and correspondingly high interest rates] and held our rates and enhanced our credit controls. Some companies are all ‘tech’ and very little ‘fin’.
Businesses will continue to need access to lines of credit, especially those in the SME sector, which will do the heavy lifting in pulling the UK out of recession. Time Finance has inserted itself in a key strategic area of the market, offering that credit outside the mainstream, which will presumably still have its gates closed, due to cost, affordability or inflexibility to many small businesses whilst the recession burns itself out. The old adage of banks offering to lend you money only when you don’t need it will be one of the truisms of 2023 and post-recession, In the meantime companies like Time Finance are there to plug the gap, and Time Finance has reformatted itself and with a disciplined credit control system and concentration on Net Interest Margin could follow up its latest results with a strong 2023.
