Debt Free Direct

Financials from Lancashire-based debt advice and solutions counter Debt Free Direct (DFD) – originally backed by GCI at 44.5p – dazzled on every metric at the half year to the end of October.

Adjusted pre-tax profits powered ahead by almost 130% to £4.26m, sending earnings 146% higher to 7.66p, all on turnover up 91% to £12.2m. The interim dividend was doubled to 3p.

One minor blip was a move to new offices that caused disruption in Individual Voluntary Arrangement (IVA) volumes, although chief executive Andrew Redmond predicts strong volume growth for the second half.

DFD, which began paying dividends a year ago, has a robust balance sheet and says it is throwing off cash as a result of long-term growth in the number of IVA cases under supervision. Redmond said the IVA market is still a young and growing market place, and is sympathetic towards calls for regulation of the sector, with the group’s processes ‘regulation ready’. He also expressed excitement about growth in the UK, as well as for Debt Free Direct Australia, which began trading in August.

For the year to April, the City expects a rise in profits from £5.1m to £10.9m, and growth in earnings from 9.4p to 20.3p. For 2008, investors should set their stall out for 31p of earnings from profits of £16.7m. Those estimates place the 467p shares, which have taken a pause for breath after hitting a 52-week peak of 595p, on a lofty looking forward p/e ratio of 23 this year, falling to a more palatable 15 for April 2008.

We think the premium price is worth paying, with personal insolvencies burgeoning as borrowers overstretch themselves, and bumper growth looking assured. If you already own shares, consider topping up your holding. Add.