Asset-based lender Davenham – originally backed by Growth Company Investor at 365.5p – delivered a 14% rise in adjusted pre-tax profits for the half to December and organic growth prospects remain strong. Profits growth from �4.9m to �5.6m, on turnover lifted 15% to �18.3m, drove earnings more than 50% higher to 14.87p, allowing for a maiden interim dividend of 4.45p.

The Manchester-based group, which typically loans between �10,000 and �4.5m to SME ventures inadequately serviced by the banks, reported 14% loan book growth to a record �214m, boosted by a strong turn from the new London office and the introduction of two new property finance lending products – buy-to-let mortgages and commercial property mortgages.

The swift success of the London office proved a particular highlight, with London breaking even in six months compared with two to three years at other offices. ‘It shows the Davenham proposition is exportable,’ remarked chief executive David Coates, ‘and we’re simply getting better at what we do.’

Yet to complete a first acquisition on AIM, Coates remains on the lookout for deals nonetheless, and continues to walk away from unrealistic vendors rather than overpay and destroy value. ‘We’ve got a very good core business so we can afford to be careful,’ he told GCI. This is reassuring and the organic growth opportunity remains great, with Coates continuing to expand the business beyond its North West of England base, with the South West, East Anglia and Scotland under consideration.

Furthermore, the development of new loan products, as well as generating new business from underwriting larger loans, should continue to drive the bottom line – the recent large increase in banking facilities to �300m through a successful refinancing should underpin portfolio growth ‘over the next two to three years’. For the full year, analysts are looking for a leap in profits to �12.4m (�8.6m) and growth in earnings to 32.8p (29.4p), placing the shares on a lowly rating of 10 times. Given the group’s terrific growth prospects and solid yield appeal, that’s too low. A re-rating is due and we remain fans. Buy.

Davenham	AIM	�86.37m	332.50p	0.00p
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