Kensington Group, the specialist mortgage company, expects the non-conforming home loan market to double to £12bn over the next five years, spurred by the expansion of traditional lenders in the sector. Kensington is the UK market leader in supplying borrowers who have poor credit histories or the self-employed, segments traditionally excluded by mainstream lenders.
The company yesterday unveiled an increase in pre-tax profits to £11.4m for the six months to May 31 in its maiden results following flotation last November. The comparative result was £2.99m. Earnings per share were 13.5p (1.3p). John Maltby, chief executive, said the non-conforming market was growing faster than traditional mortgage business.
Kensington said it generated new business of £274m in the first half, with a pipeline of more than £140m at May 31, 50 per cent higher than a year earlier. Net income from continuing operations was 19 per cent higher at £16.4m, while lower borrowing costs helped to cut operating expenses by 10 per cent. Gross margins dipped from 4.37 to 4.14 per cent, reflecting the repricing of the general UK mortgage market and Kensington's improved credit profile.
Kensington shares closed up 2{1/2}p at 210p, but remain below the 225p float price.
Comment
* Kensington's contention that the rising tide of competition will boost the sub-prime market's respectability and fuel loan growth has failed to add buoyancy to the share price. New entrants have punctured a stock that stands on a forward p/e of just below 7 on forecast full-year profits of £37.4m. It still has to prove that its experience can win out over the clout of mainstream lenders eyeing its fat margins. Moreover, equity investors already wary of property as an asset class are also still struggling to interpret the stream of profits from securitisation that underpin Kensington's low cost of funds. The multiple may be low, but it is likely to remain so for the time being.
The company yesterday unveiled an increase in pre-tax profits to £11.4m for the six months to May 31 in its maiden results following flotation last November. The comparative result was £2.99m. Earnings per share were 13.5p (1.3p). John Maltby, chief executive, said the non-conforming market was growing faster than traditional mortgage business.
Kensington said it generated new business of £274m in the first half, with a pipeline of more than £140m at May 31, 50 per cent higher than a year earlier. Net income from continuing operations was 19 per cent higher at £16.4m, while lower borrowing costs helped to cut operating expenses by 10 per cent. Gross margins dipped from 4.37 to 4.14 per cent, reflecting the repricing of the general UK mortgage market and Kensington's improved credit profile.
Kensington shares closed up 2{1/2}p at 210p, but remain below the 225p float price.
Comment
* Kensington's contention that the rising tide of competition will boost the sub-prime market's respectability and fuel loan growth has failed to add buoyancy to the share price. New entrants have punctured a stock that stands on a forward p/e of just below 7 on forecast full-year profits of £37.4m. It still has to prove that its experience can win out over the clout of mainstream lenders eyeing its fat margins. Moreover, equity investors already wary of property as an asset class are also still struggling to interpret the stream of profits from securitisation that underpin Kensington's low cost of funds. The multiple may be low, but it is likely to remain so for the time being.
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