This doorstep lender is like last week’s short-selling suggestion, Speedy Hire. If the forecasts are correct, the shares are startlingly cheap on a prospective PE ratio of under three and a dividend yield of nearly 23 per cent.
The trouble is numbers like these so often mean not that the shares are a bargain but that the business is heading for trouble.
The company borrows in wholesale money markets to lend at ferocious rates of interest to low-income households. Its customer base is low income households so arrears are rising though the company, unsurprisingly, insists that the rise will not be dramatic.
On the funding side, the group is well aware of the dangers of relying on wholesale markets. It recently raised £202m in a rights issue at 128p and has a stated aim of raising £1bn of customer deposits by the end of 2010 to reduce its reliance on wholesale funding.
...
