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Ouch! Kensington shares took a dive today (down over 10%) after it released a trading statement saying that competition had lowered margins and lower income is being received from early redemption charges.

Kensington said, “Pre-tax profits for 2006 are likely to be within analysts’ expectations but towards the lower end of the range.”

Kensington had recently upped its stake considerably in the secured loans specialist Money Partners and reported secured loans business through this channel delivered strong growth. Although the figures aren’t separated, it said this business combined with first charge mortgages in Ireland “are over 100% ahead of the same period in 2005.”

I’m not an expert on this share, but get a slight feeling it’s got a slightly disjointed group. In this trading statement it reports the 57.5% share in Money Partners, a 64% stake in Start Mortgages and the recent purchase of a minority interest in a Swedish non-conforming lender. I know some channels are direct to consumer and some are down the packager/broker route, but I still get the feeling of each division of the group trying to fight its own battles, whereas a united front might be more appropriate.

These thoughts are sort of backed up by the statement “The direct-to-consumer distribution business, TML, continues to deliver low volumes of mortgage completions to Kensington Mortgages. Over the eleven month period it generated 5% of the total new business completions for the Group. TML’s cost-base has been reduced further but the cost of origination, for Kensington, via this distribution channel remains high. A new Managing Director was appointed in July 2006 and all aspects of the TML business model are being reviewed including the potential growth opportunities for its broker facility. The level of goodwill held on the Group balance-sheet for this business will be reviewed.”

In the last set of results the goodwill was around £17million, but it is difficult to assess how much of this is derived from TML, so consequently the amount of goodwill they are going to write off (as per the last line of the previous quote) is also difficult to establish.

Although what I’ve said so far may seem negative, I do get the feeling the shares will recover and that perhaps the bar had been set too high.

Yesterdays’ big news was that Cattles PLC made an announcement saying that they are still in talks to buy out the sub prime lender London Scottish Bank.

I originally covered this story last month but it had all gone quiet since then, with no stock market release. In yesterday’s statement Cattles said “the conclusion of due diligence has been deferred pending a detailed review of London Scottish Bank’s
audited financial results for the year ended 31 October 2006, the first annual
audited results to be prepared under International Financial Reporting
Standards. There can be no assurance that an offer will be made. Any potential
offer would be subject to Cattles’ review of that work and London Scottish Bank’s current trading and is unlikely to be made prior to the release of London Scottish Bank’s results for the year ended 31 October 2006 in January 2007.”

As reported in September Cattles have an agreement with the Alliance and Leicester to develop its secured loans business Welcome Financial Services. I suppose in many ways the buying out of the London Scottish Bank could be a significant development in this area. Cattles are also quite well known for there lower value loans through the heavily promoted Dial4aloan brand.

I suppose the big news today is that Debtmatters Group PLC have announced their interim results and at first glance they look impressive.

Debtmatters, who only listed in June last year and in June this year bought Bolton based secured loans specialist Loanmakers, announced revenues for the period up 465% to £13.79million (last year £2.44million). It also reported a whopping rise in EBITDA with it up 531% to £4.83million (£765,000).

A comment in the results says “Strong performance across entire business and accordingly the Board anticipate that results for the full year to March 2007 will now be ahead of current market expectations”.

The market seems quite impressed with the shares up around 10% on morning trading.

The most significant growth has yet again come in the IVA market with Debtmatters saying “In September 2005 we processed 230 IVAs; by contrast, September 2006 was record month with 636 IVAs processed by us, a 275% increase on the previous year.”

Personally, I’d be wary of investing in a business whose main source of income is in the rather controversial area of Independent Voluntary Arrangements. However the signs, at least for the short to medium term, are that there will be no formal regulation, so the business model looks quite safe for some years to come.

Aside from cross-referral, I presume the purchase of Loamakers was also strategic in that it means Debtmatters doesn’t have all its eggs in one basket.

Commenting on Loanmakers, the Chief Executive said “I am particularly pleased to report that Loanmakers has made an excellent start to its life under the Group’s ownership. Volumes of business are in line with expectations and we are pleased by the encouraging early signs of the levels of referrals between Loanmakers and Debtmatters”