TIME ISN'T STANDING STILL - 30/01/24

It was just over a year ago that I first took a look here at TIME, the AIM quoted lender to small and medium sized businesses across the UK.

At that time, the shares looked deeply undervalued to my eye at circa 22p, given the prevailing performance at that period, along with the prospects outlined ahead.

Thus far things have come to fruition, where it has been a highly rewarding story, the shares now up to 38.5p representing a 75% increase, after the company delivered upgrades and positive momentum along the way.

(I have popped my first coverage here, which may be of interest. https://martinflitton1.wixsite.com/privatepunter/post/time-finance-beginning-to-tick-27-01-23)

Having last week released its Interim Results for full year 2024, I have once again taken the opportunity to catch up with management in order to hear more on the current performance and prospects ahead.

In terms of the numbers released, TIME reported strong and impressive figures with a continued demonstration of progress, where 29% year-on-year growth was achieved. Total revenues increased 19% to £15.7m which in turn translated into a 35% jump in pre-tax profit to £2.7m.

Speaking with CFO James Roberts earlier today, I was firstly keen to hear more on the type of deals that have further driven the business in what are clearly more testing economic times.

Expanding on this area, Roberts told me firstly about progress on the asset finance front, providing background on one deal in particular.

“One of note that we did in the last six months was with a construction firm that is a growing operation, where we supplied them with three pieces of yellow plant.”

As a result, I was told that the client concerned has been able to take on new contracts across the construction industry space, where it has now become a subcontractor to one of the really big sector players.

Going on, Roberts added, “we are really quite pleased with it, as we have particularly tried to focus on bigger more secure deals in the last two years and this was a prime example of not just one piece of secure big kit, but three to the same client.”

In monetary terms the kit in question is typically in the £60k-£80k range which is all secured and provides for TIME now seen to be fishing in a progressively bigger pond.

“We are not just about helping businesses get on the ladder” added Roberts, “but really supporting them from the SME to MSE area and their growth”.

The CFO continued, pointing out that construction is a big sector for them, although in keeping with other areas there is a strong diversity across the company, with nothing making up in excess of 10% of the book.

Concluding a deal such as the aforementioned with three pieces of hard kit is, Roberts said, the equivalent of thirty deals that would have been achieved under the old traditional soft asset area such as providing coffee machines.

Aside from hard assets, invoice finance is also now an important and growing area for the company, which has seen a step change in terms of the sweet spot in which it operates.

In its early days, the invoice financing operation was providing facilities of up to £0.5m, whereas today, having moved into other areas of operations the sweet spot is a more pronounced £1.5m, although there is, I was told, one that comes in at a chunky £3.5m.  

Clearly, significant progress has been made at TIME following a step change a few years back, which now sees it looking firmly on track to increase its order book by June 2025 to £230m.

At this point Roberts also mentioned a reputable charity which it took on board in the last year which operates in the housing space that he says is doing well, which backed by the Government is proving an excellent client.

Although the company is now involved in bigger business transactions, it is still very active across the smaller space, which Roberts says provides for welcome diversity and for an additional revenue stream.

A highly important aspect in terms of the investment case with businesses such as TIME though, is the level of arrears, particularly in light of the current economic climate.

On that front, the CFO said that although they are never pleased with arrears, they are with the level it is at and in the context of the space the company is operating in. Commenting further Roberts said, “arrears between 5% and 6% across the industry is classed as a good clean book and we have been bubbling around 6% for around eighteen months now.

Arrears are, he continued, the nature of the beast, but at that level it is perfectly fine for us and particularly so given the gloom and doom they have been hearing of.

Much of that performance appears to be down to the selection of its clients as opposed to a land grab strategy as they are growing proportionally with the same quality that was seen over the last year.

This has resulted in continued progress, where Roberts points out there are certainly plenty of businesses out there to ensure the story continues.

In general terms, he adds that although the economy may not be great, nor is it in his view as bad as what has arguably been portrayed and he believes the interim numbers signify that.

Looking ahead, the outlined increasing profits arguably opens the door for dividends or possibly an acquisition, or would the company continue on its recent successful path of reinvesting the money to drive organic growth.

The CFO provided some insight for me here, “the dividend is a very topical subject and we have had many debates over the last twelve months and we do tend to have a look at it every quarter.

But we have a real mixture of shareholders, where some say they want a dividend and others just really don’t and you have to look at both sides.

Our view at the moment is that we can see a clear path to continue to grow, as there is business and opportunities there, so we feel that at the moment it is more beneficial to keep that in the business and utilise it to continue growing.”

Roberts also stressed that the company is very much a growth stock and that in reality, if they did announce a dividend at this stage, it would probably be quite small in relative terms.

Another consideration to accelerate growth is potential for a bolt-on-buy, so it was another area worth touching on. “We have got our four-year plan through to May 2025 and we are very much focused on that and we need to deliver” said the CFO.

“At the moment we are on course and we think we are doing well, so what we didn’t want to do was get distracted and focused elsewhere. So, we are concentrating very much on this, doing what we say we are going to do to give people confidence and deliver, which we have done over the last two and a half years.”

However, given that May 2025 isn’t particularly that far off and the culmination of the four- year plan, Roberts and his board colleagues are well aware that investors may already be wondering, just what comes afterwards.

“We are already working on our next medium-term plan, it may be three or four, even five years, but it is in the early stages as yet.

We would like to be in the position though come September which is when we publish our full year audited results to say what the vision is beyond that”.

Clearly the board here is intent on further growing its operations and with opportunities already identified in a largely stagnant climate, the prospects remain positive for further profitable growth, particularly so if the economy returns to growth further fueling operational gearing.  

Although there is nothing on the cards in relation to any acquisitions, Roberts said that you wouldn’t rule it out in a four or five-year plan.

He also stressed, “if we did go back into the acquisition world, it would be very different to what it was before, where a lot of little bolt-on-businesses were bought,”

Within their thinking though, he suggested and importantly so, that shareholders clearly needed to be considered, given the organic opportunities. Therefore, it would have to be a pretty compelling acquisition prospect as potential dilution could subsequently outweigh the benefits.

One other aspect worth touching on that I had previously visited with the CEO, was the presence of the major US shareholder Arena, which to that date, the company had really had limited interaction with.

Roberts was happy to update me, where he acknowledged that TIME was pretty small in terms of where Arena usually invests or moves, given its size.  

That said, Arena’s investment of around four million in TIME at circa 22p is surely noteworthy as an investment and it has intrigued me since my first purchase as to whether it will remain a passive holder.

Roberts elaborated somewhat by saying that they meet up with them now a couple of times a year, running through the numbers and that the message they have received is that Arena remains very supportive of the business.

Looking at the full year 2024 forecast numbers from broker Cavendish, expectations see revenue of £30.8m pencilled in, providing for a pre-tax profit of £5.4m with EPS of 4.4p.

That subsequently moves to £33.1m next year with PBT of £6.3m and EPS of 5.1p, whilst net cash is forecast to swell to £4m.

At the current price, TIME trades on a PE of 8.7, falling to just 7.5, which looks very good value to me and thus has led the broker to lift its target price to 71p.

Although the shares have increased significantly since my chat a year ago, it has taken time for that to emerge, with 30p having proven a difficult bridge to cross.

However, having delivered ongoing positive news, the story appears to be building further momentum, where an under promise and over deliver strategy appears to have played out well over the last year.

The board here is rightly cautious though, particularly given the prevailing economic headwinds and it is certainly welcomed by this investor.

But, having within the interim results stated that it expects to at least meet market expectations, then it would appear that the door is still ajar for continued upside.