Challenger banks have burst on to the scene in recent years, as regulators tried to inject new life into the industry and make sure customers had more choice.
Some have already been swallowed up by larger players. Some have already fallen short – TSB being a case in point. And many are digital only, which can unnerve more traditional bank customers.
PCF Group is rather different. The company has been a bank for little more than a year but it has been a successful business for almost quarter of a century. The shares, at 37p, are worth a closer look.
Riding high: PCF Group lends to niche customers such as riders buying a horsebox
PCF was founded in 1994 by Scott Maybury, a down-to-earth Australian who remains at the helm to this day. The company started out as an asset finance house, lending money to small businesses so they could buy trucks, vans, tools and such like. Over time, PCF expanded into the consumer market, primarily helping customers buy second-hand cars.
The loans were funded by borrowing from banks, a model that worked well until the financial crisis. Then lenders drew in their horns and Maybury was forced to shrink his business because he did not have the cash to lend out.
The climate had changed again by 2012 but Maybury was resolved to reduce PCF’s reliance on bankers. PCF applied for its own banking licence, was approved last year and has been taking deposits since August 2017.
The move has met with widespread approval from savers and borrowers. The bank has already gained £140 million in deposits, with customers drawn by PCF’s consistently attractive savings rates and focus on service. Unlike many of its peers, for instance, PCF offers postal accounts, which often appeal to older consumers or those who find online banking hard to handle.
Success on the savings side has given PCF considerably more flexibility in the way it lends to borrowers because the cost of paying depositors’ savings rates is significantly less than bank borrowing rates. Total lending to businesses and consumers has now hit around £200 million, up from £146 million in the year to last September. And new lending has almost doubled, with loans to small firms growing particularly fast.
Maybury has also developed a reputation for lending to the owners of classic cars, motor homes and horseboxes, from the most basic to luxurious models valued at more than £100,000. Although this is a niche area, it is underserved by other banks so PCF is a leader in the field. Whether lending to a proud horse-owner or a family business with a fleet of school buses, PCF is cautious and default rates are low.
Looking ahead, Maybury believes the business can grow rapidly, while retaining its robust track record. He has set a lending target of £350 million by 2020, building up to £750 million by 2022. At the same time, PCF is moving up the ladder, focusing on better quality borrowers than in the past. And Maybury is keen to lure in more depositors too, targeting £600 million of savings over the next four years.
City brokers believe PCF can do it – and increase profits too. The group’s financial year ends on September 30 and analysts expect profits of £5.2 million, rising to more than £8 million in 2019 and £10 million the year after. Maybury pays a small dividend – 0.3p is pencilled in for this year and 0.4p next – but he prefers to invest most of his surplus cash in building the business for the future.
Midas verdict: PCF has had a promising first year as a bank but there is plenty more growth to come. The group is attracting thousands of new savers and borrowers and Maybury is experienced enough to keep bringing in the business while keeping a weather eye on the economic climate. At 37p, the shares are a buy.
Traded on: Aim Ticker: PCF Contact: pcf.bank or 020 7222 2426