# Non-Standard Finance PLC Q&A with Hardman & Co (LON:NSF)

- Link: https://www.directorstalkinterviews.com/non-standard-finance-plc-qa-with-hardman-co-lonnsf/412763360
- Published: 2018-12-19T11:42:10+00:00
- Author: Amilia Stone

**Non-Standard Finance PLC** (LON:NSF) is the topic of conversation when Hardman
and Co’s Analyst Mark Thomas caught up with DirectorsTalk for an exclusive interview.

 

**Q1: You released a note the other day entitled ‘Reading the Runes’, can you tell
us what that was about?**

**A1**: In early December, Non-Standard Finance held an investor day at their Reading
branch of Everyday Loans, which is one of their subsidiaries, and also at the head
office of Everyday Loans in Bourne End.

Investors and analysts got the opportunity to see the front-line operations and 
review the company’s strategy. The former confirmed our view on the competitive 
advantages of having a branch network and the operational synergies of being part
of a group. The presentation on strategy confirmed the long-term, controlled growth
opportunity from the business with an excellent market positioning and sustainable
competitive advantages.

 

**Q2: So, what did you learn in the group’s strategy section?**

**A2**: Well, the key message from the investor visit is about continued long-term
controlled growth in Everyday Loans, as I say a business that’s got excellent, sustainable
market positioning.

In particular, what came out from this visit is that for the foreseeable future,
the company can use technology to deliver an enhanced customer experience and deliver
operational efficiencies. The opportunities from the latter are designed to enhance
the face-to-face business model, they’re not going to replace it.

The second is that it can generate more leads by number but also convert more leads
with deeper and broader broker relationships, expanding marketing and improving 
conversion rates.

Thirdly, it can expand its branch network with a long-term potential optimal size
of the network now being viewed as 100-120 branches, broadly double the current 
network, and up from a previous target of 75-100 branches. Each branch at the minute
delivers something around 600,000 of profit with a target to take that to 1 million
so the increase in branches alone is a material growth opportunity.

 

**Q3: So that sounds like Everyday Loans had a lot of levers to generate growth?**

**A3**: It does, we highlighted in our note ‘Everyday Loans: A heart of Gold’ that
was published in May how we saw this structural competitive advantages in credit
and in its branch distribution. These are really important supplements to the levers
to operate growth.

As I say, with this meeting, the highlight really was the growth opportunity, more
branches, more people, better processing, stronger lead generation, all delivering
medium term profits in many multiples of the current level.

 

**Q4: So, what did you gain from visiting the branch?**

**A4**: For me, the key thing was it reinforce the structural advantages we highlighted
in our May note. In particular, the branch manager outlined how they get their really
deep knowledge of their customer, the customer’s personality and also going through
which documents you can look at in detail and discuss with the customer in advance
that you simply can’t do online. The level of engagement with the customer was more
than we’d expected, building relationships which over time become critical collecting
money when things go bad as well.

What we also learned was that the group synergies which are being claimed by group
management actually are working through to the front line and the branches, especially
when it comes to adopting best practice.

All in all, it was a very comforting confirmation of the advantages we believed 
to be there before.

 

**Q5: With Brexit in the news constantly, it’d be rude not to mention it. Are there
any vulnerabilities and if there are, how will Non-Standard Finance be affected?**

**A5**: A well-managed, non-standard, personal lender historically have performed
very robustly in downturns so if there was a Brexit-related downturn we would be
looking for NSF to do just that. Credit losses indisputably rise but there are increasing
numbers of customers that need non-standard finance, so the volume and the demand
goes up and with that, pricing also goes.

So, what you have is the balance between higher credit losses but more volume and
better pricing and what’s critical to that dynamic is being close to your customer
and understanding how they react as things become more difficult. It’s also important
to ensure that you have your own funding committed and NSF has done that.

So, overall, NSF’s businesses look well positioned both in absolute terms but also
significantly better than most of its competitors, especially those who are online.

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