• Mark Watson-Mitchell

Distribution Finance Capital Holdings – with results due this group’s shares could be ready to move

Since this company floated three years ago, its shares have fallen significantly, now almost 50p lower at just 41p. Could this be the right time to take a small position?


This group is a business lender which builds relationships with manufacturers and then provides working capital solutions up and down their supply chains.


In order to help businesses drive their growth, its products allow them to match their cash cycle to the lending term, which in turn enables their customers (dealerships for example) to release the working capital tied up in their day-to-day operations.


The business, which was set up in 2016 as a specialist commercial lender, has grown rapidly since it commenced lending in March 2017. It floated in April 2019, with its shares at 90p each and the group capitalised at £96m.


Distribution Finance Capital Holdings (LON:DFCH) is the holding company of DF Capital Bank Limited (DFC), a specialist commercial lending and personal savings bank. It was authorised as a bank in September 2020.


With a focus on supporting the growth of SMEs DF Capital provides specialist lending products to businesses, supported by deposits through its online personal savings accounts.


The company finances small to medium sized enterprises operating across the distribution supply chain and today it primarily focuses on financing products in five sectors: motor vehicles (typically mopeds, scooters, motorcycles and light commercial vehicles but not cars); recreational vehicles, lodges and caravans; marine (typically smaller marine craft); industrial equipment; and agricultural equipment.


It works with manufacturers over multiple sectors. Its relationships include UK brands such as Swift, Willerby, Fairline Yachts, Prestige & Homeseeker, Lunar Caravans, Norton Triumph Motorcycles, as well as global brands such as Terex, Ducati, LDV, Giant, Etesia, Erwin Hymer, Carthago and many more.


Security for funding is in the individual underlying assets, through either physical ownership or title transfer by way of assignment of invoices. Generally advancing 80% to 85% against wholesale asset value.


Recent Trading Update


Last Monday the company announced a Q1 Trading Update


The company stated that it had continued to see significant momentum in new lending, to a record of some £220m of new loans during the first three months of this year, with around £100m in March 2022 alone.


The group's loan book has grown 20% since the year-end to £302m, with more than 850 dealers now being provided with over £680m of facilities by the company.


The group expects to progress to a loan book in the region of some £400m - £500m by the end of this year.


Furthermore, it guided that the net result for the year could be in the range between a loss of £2m and breakeven.


However, it expects to achieve its first full year of profitability in 2023.


The Equity


There are some 179.4m shares in issue.


The larger holders include the Wilhemsen family through Watrium AS (14.86%), Liontrust Asset Management (12.96%), Davidson Kempner Capital Management (9.81%, plus 2.28% through financial instruments, making 12.09% in total), Blackrock (7.61%), Lombard Odier Investment Managers (7.05%), Premier Miton Group (4.56%), Northern Trust Global Investments (3.88%), Henderson Global Investors (3.08%), Canaccord Genuity Wealth (2.79%) and Schroder Investment Management (2.26%).


Analyst’s View


Mike Trippitt at Progressive Equity Research has estimates out for the last year to end December showing the group growing its net interest income (NII) over five times better – from £2.1m to £11.1m, upon which he has pencilled in a good recovery, from £13.6m pre-tax losses, to only a negative £4.1m.


The latest update leaves his estimates somewhat in the wind, until more is known on current trading. But he is apparently bullish of the group’s prospects. He sees the group’s loan book increasing after the recently closed two-year capital review.


For the coming year to end 2023 his figures infer a £37m NII and a leap into some £11.5m of pre-tax profits, generating 6.0p in earnings per share.


My View


Ahead of the 2021 results being declared on 13 April, I consider that the shares, at just 41p, have distinct growth investment attractions.


Based upon 2023 estimates that puts the shares out on a mere 6.83 times price-to-earnings ratio – and that is cheap.


The equity could easily see a 50% appreciation over the next couple of years, if not more.

In the meantime,


I now put out a short-term Target Price of 51p on the group’s shares.


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