Kensington's profits soar

10/07/2002

Mortgage lender Kensington, which lends to people with a chequered credit history, delivered a good set of interim results. Yet the business languishes on a lowly p/e ratio. William Davidson reports.

In the six months to May profits rose by 28 per cent to �13.3 million, with earnings per share climbing 37 per cent to 17.4p. An interim dividend of 1.5p per share will now be paid. While the business has been growing rapidly, its directors have been careful to avoid the reckless over-expansion that has dogged other financial companies.

New loans rose by 51 per cent to �415 million, but the quality of customers has improved, with fewer loans to people with County Court judgments against them. Kensington also offered more affordable mortgage repayments than the industry average.

Its sponsorship of TV coverage of England's cricket tour of India and Sri Lanka is said to have been successful in raising awareness among mortgage advisers. There is the possibility of expansion via acquisitions, although analyst Sarah Horder of Teather & Greenwood says: 'It has said this several times before.'

The shares picked up 5 per cent on the news. Despite this, they are still languishing on a forward p/e of less than six. Horder believes this is because investors are concerned about the perceived dangers of lending to poorly credit-rated customers. But, as she says, 'It earns more for lending to riskier customers.'

The business should prosper if there is a sustained downturn, as more borrowers will fall into its target market.