The Davenham Group has experienced something of a rollercoaster
ride over the past six months. Firstly, the annual results to June
2007 revealed a highly successful trading year, with a 33 per cent
increase in loan portfolio to £248m (2006: £187m), turnover up 18
per cent to £38.7m (2006: £32.7m) and adjusted pre-tax profit up 14
per cent to £12.3m (2006: £10.8m).
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Then, in November, Davenham’s largest shareholder (29.2 per
cent), Jersey-based ACP Capital, placed an £85m bid for the
company. This was firmly rejected by chief executive David Coates
and the Davenham board, whereupon the potential acquirer is
reported to have cast doubts upon Davenham’s “strategic direction”
and its potential ability to secure new funding given the unsure
state of the credit markets.
Returns
“We have had a good year,” Coates told Leasing Life, “which
reflects our continued organic growth strategy covering new
products, geographical reach and increased sales penetration and
cross-selling. This has created a total shareholder return of 38
per cent over the first 18 months since our admission to AIM.”
Davenham’s property finance division accounts for 62 per cent of
the group’s portfolio and 52 per cent of portfolio income. The
division has grown substantially over the past 12 months,
increasing its portfolio by 65 per cent, from just over £91m in
2006 to £150.5m. Income from its property portfolio also increased,
by 43 per cent, from £14m in 2006 to almost £20m.
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By GlobalDataThe company’s other 2007 highlights include the acquisition, in
June, of Manor Credit, the Huddersfield-based lender specialising
in yellow plant and haulage assets. The deal cost £25m and saw £23m
added to Davenham’s loan book. “It was a well-established
operation,” Coates says, “and its integration has been successfully
completed.”
The charge by ACP Capital that Davenham may find it challenging
to raise credit is puzzling, especially since it successfully
renegotiated its banking facilties in February 2007. This
represented a £300m funding line with Royal Bank of Scotland and
was set for a three-year term.
Coates is bullish about the future – with caveats. “It is a
changing market out there,” he says. “Potential property customers
are hesitant about the way values are going. Also, lenders are more
careful and tightening their criteria. There seems little doubt
lenders will seek to increase their pricing and we can only hope
the credit squeeze will not last long.”
He stressed that Davenham is in good shape. “The company
monitors its business environment on an ongoing basis and is able
to quickly modify its underwriting criteria if required to do so.
Account arrears have remained stable across all divisions,
reflecting the portfolio’s credit quality,” he says.
Debts
The company’s bad-debt charge as a percentage of its rolling
average portfolio remains within the board’s target of 1.5 per cent
to 1.75 per cent. The company stresses it is adopting a cautious
approach to credit and risk that is appropriate to the market
environment.
In March 2007, the company appointed David Bowles as group risk
director – a new role. “David joined from GE Capital,” Coates says,
“where he held senior risk positions with both the company’s
consumer and commercial assets. It was a change to invite a risk
specialist to the board – but it is better than having him placed
at the end of a corridor.”
While conscious of the current financial environment, Coates is
confident the company will make further progress during 2008.
Whether ACP will make another bid is less certain – Coates stresses
the current offer of 325 pence per share was rejected by “our
shareholders and analysts” and “we have heard nothing from them
(ACP) since”.
Meanwhile, the company is going for growth. It is on the lookout
to acquire portfolios “below the £50m line” with specialisms in
asset or property finance. “Preferably,” Coates adds, “with a high
yield – some way northwards of 14 per cent.”
A vision beyond ‘belt and braces’
Last month, Davenham won a £500,000 deal with giftware importer
Hadson UK to assist the company in capitalising on its cyclical
trading pattern.
Hadson supplies gift retailers, such as Argos and Littlewoods
Home Shopping, with licensed football merchandise and has a highly
seasonal trading pattern. It imports official gift products for
Premier League clubs such as Arsenal, Liverpool and Manchester
United.
The nature of the business means the company has massive
seasonal demands on cashflow, which affects its ability to buy in
stock. The company’s growth pattern meant it was necessary to look
at new finance options to sustain this expansion and to secure and
maximise orders during peak season. Hadson’s existing bankers
refused extended facilities without an increased personal
guarantee.
David Rampling, Hadson’s managing director, says: “We are a
successful, well-established company, with an excellent trading
history. But the bank, with which we have been for 20 years,
couldn’t, or wouldn’t, see beyond the need for ‘belt and braces’
cover on tangible assets. It was then that we approached
Davenham.”
Davenham made available £500,000 of invoice finance, providing
Hadson with the resources to secure more orders.
