Vector Capital plc (LON:VCAP) Chief Executive Officer Agam Jain caught up with DirectorsTalk discuss their business model, highlights from full year results, operational performance, paying a progressive dividend and what investors can expect from the company in 2023.
Q1: Vector Capital has now released its full year results. Before we discuss those, could you just remind us of the business model?
A1: So, we are a provider of bridging finance to the property sector so we would provide finance for investors to buy properties for either development, refurbishing or letting out.
Once they’ve used us to make their purchase, do the works, then they would often refinance with a high street lender.
Q2: As mentioned, you’ve now published results, could you just take us through the highlights please?
A2: Maybe if I just give a bit of background about the year which was a pretty rough year, 2022, in terms of the Ukraine war having a big impact on energy prices and building materials which are used in the construction industry with long lead times. We then had the Liz Truss affair and that caused a lot of loss of confidence but the worst of it all was the Bank of England rate rises which the mortgage market hasn’t been used to now for many many years.
That’s meant that from Q1/Q2/Q3, everything was sailing along fine and we were showing good growth, Q4 lot of lenders including us decided to have a ‘wait and see’ approach to see what the developments were.
Despite all of that, we delivered nearly 15% growth in the loan book size to £53 million and growth in revenue to £5.9 million, and we made a profit before tax of £2.8 million, even after having made a prudent provision of £200,000 in case of bad debts the following year.
So, overall, a very good set of results.
Q3: You mentioned the group’s positive operational performance has been achieved despite the increase in external borrowing costs on new loans provided by the wholesale funders and co-lenders. How are you able to do that?
A3: So, there’s a bit of a stagger period so the rates really started going up Q4, and so we had three quarters where none of this impacted the business.
Now, going forward, what happens is we are able to pass on the rises to our borrowers when they request an extension. The only thing is although contractually we can pass on the entire increase, we’re also trying to be mindful that we don’t want to put our borrowers into such a situation with affordability that they start getting into trouble.
So, we will be absorbing a little bit of it going forward but yes, we’ve passed on the bulk of it.
Q4: You continue to pay a progressive dividend, can you tell us more about that and why it’s important to you?
A4: Because we’re not a famous brand like Marks and Spencer etc., so to keep our investors happy, the main thing we can offer them is a very profitable company and we can just share as much of the profit with our investors.
So, this year, the final dividend is going to be 1.53p, which makes it 2.53p per share for the year 2022, which equates to about £1.1 million altogether. So, that’s an extremely good payout.
Q5: Finally, what are your priorities for 2023 and what should investors expect from Vector Capital this year?
A5: I think our number one priority as far as investors are concerned is to maintain the dividend level, but as a trading operation, we’re probably going to put caution in front of growth for 2023. We’re going to be a lot more selective in our underwriting of the type of the types of loans that we issue.
So, what you can expect on the headline figures is that the loan book will probably drop a little in 2023 as well as revenue, and there’ll be a slight drop in profit as well, but the balance sheet will still continue to grow.
So, from the investors perspective, they’re still going to get their dividend and they’re still going to get their capital growth but on lower trading figures.
