INVESTMENT
Other people’s debts
Matthew Vincent
‘A financier is a pawnbroker with imagination,’ claimed Arthur Wing Pinero in his 1893 play The Second Mrs Tanqueray. His work may be rarely seen in the West End these days, but his words are enjoying a revival in the City. Earlier this week financiers found the imagination to invest £49 million in the flotation of a modern-day pawnbroker. Where once the Square Mile mantra was to profit from ‘other people’s money’, it is now about profiting from their lack of it.
Debt is a growth sector of the UK stock market, in line with the growth in consumer borrowing. Since 1997 personal debt has more than doubled to almost £1.2 trillion. This has been fuelled not only by the housing market — non-mortgage borrowing has risen 120 per cent to £192 billion, though this is not always the problem that tabloid editors suggest. Although the ratio of debt to disposable income reached an unsustainablesounding 143 per cent last year, low interest rates and fuller employment keep the debt affordable for most. But the lack of refinancing options is a problem. Mortgage equity withdrawal peaked in 2003 so, for a majority of homeowners, there’s no more money down the back of the sofa. Conventional unsecured loans are also harder to come by, as high street banks protect their bad debt provisions. As a result, 9 million Britons have been left without access to ‘normal banking arrangements’, according to John Nichols, managing director of the National Pawnbrokers Association. For them, as for Bob Hope, it seems ‘a bank is a place that will lend you money if you can prove that you don’t need it’.
Pawnbroker H&T, where Mr Nichols is chief executive, therefore had no difficulty attracting backers when it floated this week. H&T already has 69 shops on the high street, with 42 more in the pipeline. Asked about current trading, Mr Nichols wryly observed, ‘Business has always been good.’ His is not the only listed company serving those increasingly in hock. Albemarle & Bond is growing fast, with a total of 75 branches so far. Cash Converters sees the potential to add 300 pawnbroking shops to the 110 it now runs.
Home-collected credit companies, or ‘doorstep lenders’ as they prefer not to be known, are also getting a foot in more doors. Both Provident Financial and Cattles increased their credit customer numbers in 2005. And the clearest indicator of demand for shares in this sector was the reaction to last week’s Competition Commission report saying that doorstep lenders overcharge their customers, and proposing a cap on their lending rates. Nevertheless, shares in the ‘Provvy’ regained their pre-inquiry levels within days, and Cattles rallied to a new 12month high.
Providers of individual voluntary arrangements (IVAs), an alternative to bankruptcy, have been doing even brisker business. Debt Free Direct, the market leader, last week reported a 59 per cent increase in new cases in the last six months. Debtmatters is forecast to increase its earnings by 100 per cent next year. Accuma achieved the fastest growth, with turnover up 310 per cent in the six months to January. No wonder debts.co.uk has just announced plans to float on Aim and raise £8 million. So, Investors Chronicle’s tips for a pure play in the debt market are Accuma and Debtmatters. You can invest with a purer conscience, too. An even more famous playwright than Pinero told us, ‘Neither a borrower, nor a lender be’ — but he said nothing about IVAs.
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