TIME MARCHES ON - 17/11/24

Although it was only a couple of months back that I last penned something here on TIME Finance, I thought it worthwhile providing some further comment after the company delivered another positive update to the market last week.

Somewhat inexplicably, the shares had retraced by around 8% the day before the release, which no doubt provided an opportunity for some to add, or even get on board for the first time.

Suffice to say, that following the release on trading which culminated in another upgrade the shares not surprisingly quickly recovered that lost ground, although they still appear to represent decent value going forwards.

In order to hear a little more on the current picture, I have been fortunate enough to catch up again with CEO Ed Rimmer, who I have engaged with on a number of occasions now over the last two years from when the shares were sitting at circa 20p.

Having announced that the previous trend of a building momentum has continued, with the lending book accelerating and driving record revenues, the business looks well set to continue to deliver where it is worth noting the stock trades on an appealing PEG of 0.6.  

Of course, with a business like this, there are always risks, such as increasing business failures that can potentially derail the story, so with that in mind I had a few questions to put to the CEO for some further insights.

Speaking with Rimmer, I was firstly keen to hear about a new office in Warrington, along with an apparent extending reach into other parts of the UK which should continue to assist and drive growth.

Explaining, the CEO commented, “we moved into the new Warrington premises officially last week, but that is really a replacement office for what was previously there.”

Going further, he said the beauty of the facility is that everything is now located on one open plan floor which is far more efficient for operations as opposed to the previous set up which was effectively split on different levels.

“It’s a really good facility and the team that has been behind it have brought it in on time and on budget, so that has really given us a new lease of life in Warrington.”

The office also ties in well with the way forward for the business, where Rimmer pointed out that in the New Year, they will be updating investors and the market on their new four-year plan as the previous one ends its successful cycle.

In terms of expanding their reach, he stressed they are still looking to take on new people in different parts of the country where they are currently not as well represented. “That doesn’t mean to say that we are going to have shiny new offices cropping all around the country, those days are gone, there is no real need and it isn’t economically viable anymore.

So, the expansion will be very much around key areas where we may look to go down the route of having one or two small satellite offices, which enables you to have client service and sales facilities.”

The focus on broadening the reach is very much one of looking at areas where they are not quite as well represented, but product wise, I was informed that it will be a continuation of focusing on areas that can prove successful as opposed to going off in a random direction.

That should resonate with investors, suggesting a clear and defined path of continuing and building on the success that has been achieved over the last couple of years.

“It is really about evolving what we have already got” added Rimmer, “and just doing more of what we are good at.”

As an example, the CEO pointed to the asset finance space, where whilst they say that they do the hard element, there are lots of small pockets that they really haven’t got involved with in the past.

“There are certain sectors where you need specialists to be able to confidently operate and one of those, as a recent example for us, is the bus and coach sector, which is a sub sector of what you class as standard hard assets but historically is something that we haven’t done.

Asset values in this spot can change very quickly and you really need to know what you are doing” added Rimmer.

“It’s an area that we have taken to in terms of underwriting and we are now starting to originate some volume deals in that sector whereas we previously weren’t doing any of that.”

The CEO also spoke of this new aspect of business in conjunction with the growth guarantee scheme, which is a clear example of undertaking deals which they wouldn’t ordinarily have become involved with.

The business growth guarantee scheme provides a 70% government guarantee to lenders, whilst the borrower is still 100% liable for the debt and this can work well for the likes of TIME.

The result is that it allows TIME to challenge for additional opportunities, such as those single asset deals of around half a million pounds which they wouldn’t ordinarily look at.

Because of the 70% guarantee that they get from the scheme, it clearly helps the company to become involved in these additional opportunities and whilst described by Rimmer as not being revolutionary, it greatly helps in the extending of TIME’s reach.

Despite having delivered a run of upgrades to the market, TIME’s shares still remain in single digit PE territory and arguably one concern to investors is the potential for bad debts, which could be seen to increase following the NI hike for employers.

Naturally, the budget and this space was something that needed to be aired with the CEO, which led to his commenting.

“Obviously everyone was sitting on tenterhooks waiting for the delivery of that, but I think the general conclusion was that there wasn’t an awful lot of major worries in terms of what was coming out for businesses.” Rimmer added that obviously the NI increases are not welcome and add costs, but in the bigger scheme of things he believes it’s pretty small in the context of what struggles SME’s have had to deal with over the last few years.

Here, he pointed to inflationary pressures, interest rate hikes and supply chain disruption, so he doesn’t foresee a wave of insolvencies because of the likes of the NI increase. “It is certainly a tough environment and I don’t think that will help, but I don’t believe that will create massive problems. As a business we have naturally already looked at that and one of the things we will push more is salary sacrifice whereby people can benefit from putting a bit more money into pensions and then we obviously pay a little less NI, so there are things to do to combat and it is a relatively small increase anyway, so I don’t see that budget as causing massive problems for the SME community, certainly not anymore than what was there already.”

And despite those collective headwinds that have been present in the last few years, TIME has performed strongly managing its arrears or bad debts extremely well with a firm eye and a hands-on approach mitigating downside.

In its September update, Time demonstrated a continued progression in the quality of its book, whilst importantly delivering a 1% year-on-year drop of arrears to 5% as bad debt write-offs halved to 1%, which was supported by the successful and ongoing pivoting to secured asset lending and invoice financing.

One key aspect of TIME’S ongoing growth and traction though, is its own ability to access funds to further fuel the business, which is clearly fundamental to the operations.

Raising this with Rimmer, he said, “Obviously, it is a hugely important area of our business, as without that we would in effect lose our raw materials. All I can say on this is that at the moment is that we are probably in the best position we have been in since I joined the company.

That isn’t to say that we were in a bad position before, but the reason I say that, is because we have recently renewed the three- year RBS invoice back-to-back facility with an increase of £22m overall, which has taken us to £65m from where we were.

That was really positive and only done in September this year and additionally the asset finance main facility with British Business Bank was also renewed back in May time and that also increased as well.

Furthermore, all of the other block facilities with the likes of Aldermore, Synergy Bank and UTB were renewed in the summer as well.

“There are also other players around in the asset financing space and we like to have a range of funders, so we are not just reliant on one funder. We are however reliant on just one in the invoice finance business, but that is a ten year plus relationship, so there are no concerns there.”

That suggests, barring something seriously unexpected emerging on the economic front, then TIME continues to be ticking along extremely well.

As previously mentioned in my last post, the company has been not only increasingly active in volume, but scale too, which resulted in its single biggest new deal ever done.

That was with a recruitment player for invoice discounting which represented £3.5m and supported the client through a significant restructuring process and provides for a glimpse of the path being taken.

Looking ahead, the half year numbers from TIME should be out on the 19th of Decemberwhich should provide for further clarity on the performance and this will be followed by a summary of the businesses new plan which will be timed for January 2025.

That, Rimmer added, should provide investors with a continued flow of news, so there should be plenty for investors to tune into over the next month or two.

Looking at Broker Cavendish’s latest note where there is a maintained target price of £112.p, expectations for the current year are now for revenue of £35.1m giving adjusted PBT of £7.5m with adj EPS of 6.1p.

Those numbers are forecast to increase to £37m in revenue for next year, providing for adj PBT of £8.3m and 6.8p on the EPS front.

This sees the stock currently trading on a PE of under 10 falling to below 9 at 8.6 based on next year’s numbers, which continues to look attractive, given the ongoing traction across the business.  

Whilst TIME may not be to everyone’s cup of tea it has thus far proved a very rewarding investment for me and I continue to hold as the prospects for ongoing growth remain intact.