UK consumers currently owe over £1 trillion between them – £185 billion is unsecured borrowing outstanding on credit and store cards, personal loans and overdrafts. Three AIM companies are capitalising on this burgeoning problem by offering an innovative way out of debt to the 42 per cent of people the Bank of England believes are experiencing repayment problems.

An Individual Voluntary Arrangement (IVA) allows a debtor to agree to pay a fixed amount monthly over a certain number of years, normally five, after which the debts will be cleared. This allows him to avoid bankruptcy. Creditors appreciate this tool too, as they are assured of receiving a greater proportion of these debts than under a bankruptcy.

The three AIM-quoted debt advisers that arrange IVAs – Debt Free Direct, Debtmatters and Accuma – receive a fixed sum for setting up the agreement, paid before the creditors start to receive their repayments, and then a monthly sum to supervise the IVA throughout this period.

All three companies are currently benefiting from the increased popularity of IVAs. Recent figures from the DTI said total insolvencies rose 36.8 per cent in the second quarter compared with the same period a year ago, but numbers of IVAs jumped nearly 70 per cent.

Debt Free Direct has the longest history on AIM. Since joining the market in late 2003, its shares, recommended by Growth Company Investor, have jumped 400 per cent. This happened as turnover doubled to £8.4 million in the year to last April and a first substantial pre-tax profit of £1.5 million was made. The company now has a fifth of the IVA market.

Debtmatters and Accuma are currently smaller but both should experience similar growth as the whole market continues to grow. Debtmatters, with a seven per cent market share, has already seen its shares shoot up 60 per cent from their 65p starting price in June and Accuma has more than doubled from its debut price of 82p in March.

However, a recent trading statement from the latter concern shows that this could be just the start of a successful stint on AIM for Accuma, which is younger than its two rivals. Accuma also charges slightly more for its services than Debtmatters: up to £3,000 for an IVA initially, followed by £78 each month for five years, or £4,680 in all.

The group is at an earlier stage of its development, having only started in its present form after chief executive Charles Howson bought the business in 2003. During the quarter leading up to flotation the number of IVAs completed stood at 46 per month. Since then, this has picked up to 86 in May, 106 in June and roughly 160 in July.

That equates to an annualised rate of 1,800, already matching forecasts for 2006, assuming there is no further growth. This exceeds the overall IVA market’s growth rate. With Accuma planning to advertise on television as well, the company’s growth should continue. Further out, Howson plans to expand the group’s offerings of financial products.

The 39-year-old Howson, who owns 47.8 per cent of the company, acquired Accuma after spending nearly two years at leading debt adviser Baines & Ernst. Many of the executives in his team also come from that organisation. A new IT manager has recently been installed to support the company’s anticipated expansion.

It will take time for this to show through in the company’s financial figures, since the costs of installing business systems, business development strategies, advertising and setting up IVAs are incurred up front. Most revenues are received over the succeeding five years after the IVA is agreed. Future contracted revenues now stand at £4.7 million.

Even the Bank of England’s decision to cut interest rates in early August does not affect Howson’s current bullish outlook. He believes ‘the scale of consumer indebtedness in the UK will provide significant growth prospects, despite the prospect of lower interest rates.’

House broker Daniel Stewart has said it will revise its forecasts ‘upwards’ in October when the full year results are announced. Investors should buy ahead of this.

Accuma	AIM	£1.06m	3.25p	0.00p
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