Ultimate Finance Group

SPECULATIVE BUY

31/03/2011 Ben Jaglom

Ultimate Finance Group (UFG), the AIM-quoted company specialising in finance for SMEs has unveiled a strong set of interim results amidst a challenging environment

The group unveiled a 76% rise in pre-tax profits to £337,000 on turnover of £4.1m (2009: £2.7m) in results for the six months to December, driven by an upturun in funding and a contribution of two months worth of revenue from the recently acquired Ashley Commercial Finance, purchased last October in a deal worth between £4.75m and £7.45m, depending on the achievement of certain targets by October 2012.

CEO Richard Pepler enthused that Ultimate operates in a market that is 'growing very quickly' going as far as to suggest that the traditional bank lending 'could disappear in a couple of years' to be replaced by services provided by companies such as Ultimate Finance Group.

Regarding the acquisition of Ashley, Pepler remarked that while Ultimate specialise in businesses with revenue between £350,000 to £12m, Ashley complemented the company by specialising in lending to 'those we seldom lend to' adding that it operates in market that 'has a similar profile to the sorts of companies we lend to but which is smaller in size.'

Looking forward he is keen to note that the group will be looking for another business like Ashley, describing the company as 'acquisitive' though he declares that organic growth remains the 'main focus' of the company.

Analysts at house broker WH Ireland are pencilling in profits of £1.15m (2010: £523,000) on sales of £9.3m (2010: £6.4m) for the year to July 2011, with EPS of 2.1p and 2.8p forecast for 2011 and 2012, respectively. Furthermore a dividend per share of 0.75p is expected for 2011, a yield of 4.8% on the current price.

Operating in a market that depends on the fluctuations within the SME sector, the group could well profit from the tightening of traditional bank lending that is leading a number of SMEs to turn to alternative sources of funding. Recommended by Growth Company Investor at 16.5p last March and again at 15.5p in October, we retain our speculative buy rating.