Manx Financial Group — Well prepared for potential headwinds

Manx Financial Group (AIM: MFX)

Last close As at 07/11/2024

GBP0.15

0.00 (0.00%)

Market capitalisation

GBP18m

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Research: Financials

Manx Financial Group — Well prepared for potential headwinds

Manx Financial Group (Manx) posted its highest ever first half year profit in the six months to 30 June, with PBT of £3.5m increasing 16% y-o-y. Lending growth, particularly that of higher-yielding Payment Assist (PAL) loans, continues to offset higher funding costs. Management noted the growing macroeconomic risks to wider trading conditions, but Manx should nonetheless benefit from falling interest rates and the immediately accretive acquisition of the outstanding shareholding in PAL.

Martyn King

Written by

Martyn King

Director, Financials

Financials

Manx Financial Group

Well prepared for potential headwinds

H124 results

Banks

21 October 2024

Price

16p

Market cap

£19m

Common Equity Tier 1 (CET1) ratio

12.0%

Shares in issue

119.5m

Free float

50.0%

Code

MFX

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.9)

(15.8)

(3.0)

Rel (local)

(7.1)

(17.1)

(13.3)

52-week high/low

26p

13p

Business description

Manx Financial Group is an Isle of Man based diversified financial services group. Through its subsidiaries such as Conister Bank and Payment Assist, the group operates in resilient niche lending and financing markets in both the UK and the Isle of Man.

Next events

H124 results

September 2024

Analysts

Martyn King

+44 (0)20 3077 5700

Manx Financial Group is a research client of Edison Investment Research Limited

Manx Financial Group (Manx) posted its highest ever first half year profit in the six months to 30 June, with PBT of £3.5m increasing 16% y-o-y. Lending growth, particularly that of higher-yielding Payment Assist (PAL) loans, continues to offset higher funding costs. Management noted the growing macroeconomic risks to wider trading conditions, but Manx should nonetheless benefit from falling interest rates and the immediately accretive acquisition of the outstanding shareholding in PAL.

Year end

Operating income (£m)

PBT
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/20

16.4

2.0

1.35

0.00

11.9

N/A

12/21

20.0

3.0

1.96

0.24

8.2

1.5

12/22

26.1

5.2

2.93

0.38

5.5

2.4

12/23

31.5

7.0

3.51

0.46

4.6

2.8

Note: *EPS is fully diluted.

Loan growth offset funding costs

H124 net interest income increased compared with both H123 (+6%) and H223 (8%). Funding costs continued to increase but should soon benefit from falling interest rates. Net interest margin was lower versus H123 but began to stabilise in the period as a result of the higher average lending yield. Including increased gains on securities and an offsetting increase in net fee expenses, total operating income increased 8% to £17.6m and was 16% up on H223. The impairment charge of £3.3m was flat compared with H123 but increased on H223 (£0.7m) as loss reserves were strengthened, including swift remedial action to correct some emerging pockets of credit quality deterioration at PAL. Net attributable earnings increased 25% versus H123, with EPS of 2.07p (+24%) and book value per share of 31.8p. The return on equity (ROE) was 13.5%.

Continuing growth opportunities

Manx estimates that bringing forwards the acquisition of the outstanding shareholding in PAL, at a cost of £5m, will generate a £4m saving compared with the original option terms. We estimate immediate earnings accretion of more than 10% on an annualised basis, and uplifts in book value per share and ROE. Notwithstanding its cautious approach to near-term market conditions, Manx sees good opportunities for further selective lending growth, for which the commencement of UK deposit taking will provide attractive and deeper access to funding. Manx has a prudent lending strategy and a disciplined approach to provisioning. Its loan book has significant asset backing and provisions against expected loan losses have been further strengthened.

Valuation: P/BV of 0.6x with mid-teens RoAE

Manx shares are trading at a discount of c 30% to the H124 diluted book value per share of 23.6p. The return on average equity (RoAE) has averaged 14.7% in the past three years and in H124 (13.5%) was double the peer average. To trade in line with peers, Manx would need to be trading at c 0.8x P/BV, or c 18% above its current price.

Well prepared for potential headwinds

Manx Financial Group, headquartered in the Isle of Man, is an independent banking and financial services group with roots dating back to 1935. Led by CEO Douglas Grant since 3 November 2021, the group operates several subsidiaries specialising in lending services for retail and commercial clients in the Isle of Man and the UK. Key subsidiaries include Conister Bank, Conister Finance and Leasing, MFX, PAL, Blue Star Business Solutions, Edgewater Associates, Ninkasi Rentals and Finance, and The Business Lending Exchange. The group’s operations encompass a wide range of services from banking and specialist lending to FX and advisory. Manx has a strong track record of growth, achieved through a combination of organic development and selected acquisitions that augment the range of services that it offers and enable it to build market share in chosen markets. Over the past five years, Manx’s loan book and net trading profit have both more than doubled (annual compound growth of 17% and 15% respectively).

Following the grant of a UK branch bank licence late last year, Conister Bank has commenced UK retail deposit taking, which provides it with a strategically important alternative source of liquidity to support the bank’s UK lending growth. The new deposit-taking platform is web-based and entirely automated, allowing customers to be onboarded within a matter of minutes. The platform represents a key component of Conister’s technology drive to build a competitive advantage.

PAL, with c 100,000 customers, is a good example of the organic opportunity to cross-sell existing products across a wider customer base. The recent acquisition of the remaining 49.9% interest demonstrates Manx’s ability to build out its franchise without taking excessive risk and the PAL acquisition in its entirety should be self-financing by the earnings contribution of PAL itself. Further full or partial acquisition opportunities are under review, including in the UK general insurance market, where Manx sees a good opportunity for cross-selling to its existing customer base.

In its interim report, management struck an understandably cautious tone in describing the potential for global political and macroeconomic developments to have a negative impact on economic growth and trading conditions. While the Isle of Man economy is performing well, with credit ratings agency Moody’s expecting GDP growth to reach 3% by 2025 (1.5% in 2023), in the much larger UK economy (c 84% of Manx’s lending), the new government has set a challenging objective of balancing its well-flagged tax increases with its dual aim of fostering economic growth. Notwithstanding the expected further decline in interest rates, management is not planning for market conditions to be as favourable as has recently been the case.

H124 results

H124 PBT of £3.5m was more than 16% ahead of the prior year period (£3.0m). Although high interest rates and their upward pressure on funding costs continued to act as a drag on net interest margin (NIM), this was more than offset by lending growth and an increased yield on lending, primarily reflecting an increase in higher-margin PAL lending (an average yield of c 25% pa). Net interest income increased by 6% compared with H123 and by 8% compared with H223.

NIM should benefit from the decline in interest because, while nearly all loans and deposits are at fixed rates, the deposit book matures more quickly than the loan book and will reprice to lower interest rates faster.

Net fee expenses of £1.7m were £0.9m higher than in H123, offset by an additional £1.0m of gains on securities, leaving total operating income up 8% to £17.6m.

The cost to income ratio was stable at c 61% compared with H123 (FY23: 65%), with staff costs held flat at c £6.2m but other expenses increasing by c £0.9m, primarily reflecting the non-recurrence of a VAT credit in the prior year period.

Net operating income (before impairments) increased 7% or £0.5m versus H123 and compared with H223 it was £1.9m higher, driven by higher core operating income.

Impairments charges for loans and advances of £3.3m were similar to H123 but well above H223 (c £0.8m) and were reflected in increased provisions and increased cover of impaired loans, primarily relating to some underlying credit quality deterioration identified in some parts of PAL’s lending book. The PAL loan portfolio is characterised by short durations (an average c 10 months) and granularity, facilitating early identification of potential issues with individual customers and the swift corrective action that Manx has undertaken.

PBT of £3.5m was 16% up on H123, and net attributable profit of £2.4m was up 25%. The faster growth of net attributable profit primarily reflects a lower share of minority interests in PAL and, to a much lesser extent, Ninkasi Rentals & Finance (90% owned).

Exhibit 1: H124 income statement summary

£m unless stated otherwise

H124

H123

H124/H123

H223

H124/H223

FY23

Net interest income

17.3

16.4

6%

16.0

8%

32.4

Net fee income

(1.7)

(0.8)

110%

(2.5)

(34%)

(3.3)

Core operating income

15.7

15.6

0%

13.4

16%

29.0

Other operating income

0.3

0.1

344%

0.3

(9%)

0.4

Gains on securities and asset revaluations

1.7

0.7

152%

1.4

17%

2.1

Total operating income

17.6

16.3

8%

15.2

16%

31.5

Operating expenses

(10.8)

(10.0)

8%

(10.3)

5%

(20.3)

Operating profit before impairments

6.8

6.3

7%

4.9

40%

11.2

Impairment on loans and advances to customers

(3.3)

(3.3)

0%

(0.8)

293%

(4.1)

Profit before tax

3.5

3.0

16%

4.0

(12%)

7.0

Income tax expense

(0.7)

(0.5)

50%

(0.4)

80%

(0.9)

Net profit

2.8

2.5

10%

3.6

(23%)

6.1

Minority interests

(0.4)

(0.6)

(39%)

(0.2)

55%

(0.9)

Net attributable profit

2.4

1.9

25%

3.4

(28%)

5.3

EPS (p)

2.07

1.67

24%

2.91

(29%)

4.59

Diluted EPS (p)

1.59

1.30

22%

2.21

(28%)

3.51

Key ratios

 

NIM (net interest income/average assets)

7.1

8.2

7.1

7.5

Cost of risk

1.8

2.1

0.5

1.3

Cost income ratio (%)

61.4

61.2

68.0

64.5

ROE (%)

13.4

12.7

20.3

16.4

Source: Manx Financial Group data

Manx says that, while PAL had a difficult start to this year, it nonetheless contributed £1.9m before tax (H123: £1.5m) and Manx fully expects it to have a major positive impact on the group’s full year results. Among the group’s other subsidiaries, the MFX foreign exchange advisory business reported record profits of £0.5m (H123: £0.4m), benefiting from continuing financial market volatility; Edgewater Associates, an Isle of Man independent financial advisor, increased profits to £0.3m (H123: £0.1m); and UK-based sub-prime lender The Business Lending Exchange earned £0.4m (H123: £0.3m). All other major operating subsidiaries traded well and contributed a further £0.5m on a consolidated basis.

Loans and deposits continue to increase

The loan book increased 9% to £372.8m versus H123 (£343.2m) and was 3% higher than at the end of FY23. Customer deposits have continued to grow at a faster rate than lending, increasing 23% to £409.3m compared with H123, and by 5% compared with end-FY23. The loan deposit ratio of 91% was slightly down on H223. Meanwhile, excess liquidity is generating a positive return from short-term UK government treasury bills. H124 high-quality liquid assets (UK treasury bills plus cash) amounted to £95.9m, almost double the H123 level and up from £88.2m at end-FY23.

Conister Banks’s Tier 1 capital ratio increased c 50bps to 12.0% and we estimate the total capital ratio is 16.1%.

Book value per share (BVPS) increased 6% to 31.8p compared with the end of FY23 and was up 17% year-on-year. Reflecting a £0.6m increase in intangible assets (related to the group’s digital investments, including its online UK deposit-taking platform), net tangible assets per share of 13.5p was broadly in line with end-FY23 and 14% above the H123 level. The continuing strong level of profitability was reflected in a return on average tangible equity of 26% and a return on book value of 13%.

Exhibit 2: Key H124 balance sheet data

£m unless stated otherwise

H124

H123

H124/H123

H223

H124/H223

Customer loans (net)

372.8

343.2

9%

362.7

3%

Goodwill

10.6

10.6

10.6

Other assets

118.9

65.9

107.5

Total assets

502.2

419.7

20%

480.7

4%

Customer deposits

409.3

332.5

23%

390.4

5%

Loan notes

41.4

39.5

39.3

Other liabilities

14.8

15.7

15.0

Total liabilities

465.5

387.7

20%

444.7

5%

Net assets

36.7

32.0

15%

36.0

2%

Book value per share (p)

31.8

27.1

17%

30.1

6%

Tangible book value per share (p)

13.5

11.9

14%

13.6

(1%)

Loan as % deposits

91.1

103.2

92.9

Common Equity Tier 1 ratio (%)

12.0

0.0

 

10.9

 

Total capital ratio (%)

0.0

0.0

 

15.9

 

Source: Manx Financial Group

The key changes in the loan mix in the past 18 months have been the run-off of government-backed lending schemes and the continued strong growth in unsecured personal loans. Driven by PAL, unsecured personal loans have increased by 62% over the past year, from £75.2m to £122.0m, and from 21% of the total book to 31%.

Exhibit 3: Gross lending composition and growth

Net lending (£m)

Y-o-y growth in net lending

Split of loan book

H123

H223

H124

H123

H223

H124

H123

H223

H124

HP balances

102.5

119.5

121.5

58%

37%

19%

28%

31%

31%

Finance lease balances

21.0

24.9

26.2

-12%

16%

25%

6%

7%

7%

Unsecured personal loans

75.2

88.6

122.0

106%

78%

62%

21%

23%

31%

Vehicle stocking plans

1.9

2.0

1.5

4%

3%

-19%

1%

1%

0%

Wholesale funding arrangements

25.2

21.5

11.8

42%

-30%

-53%

7%

6%

3%

Block discounting

54.9

47.5

37.8

90%

3%

-31%

15%

12%

10%

Secured commercial loans

12.7

25.8

31.6

-3%

102%

150%

4%

7%

8%

Secured personal loans

1.0

1.1

0.9

-32%

-42%

-6%

0%

0%

0%

Government backed loans

47.6

41.3

32.0

-27%

-26%

-33%

13%

11%

8%

Property secured

19.2

10.1

9.6

N/A

N/A

-50%

5%

3%

2%

Total net loans

361.1

382.3

395.0

42%

24%

9%

100%

100%

100%

Source: Manx Financial Group

Increased provision cover

Manx has a prudent lending strategy and a disciplined approach to provisioning. Its loan book is a well-secured book, with the group holding underlying assets as collateral for hire purchase (HP), finance leases, vehicle stocking plans, block discounting, secured commercial and personal loans and wholesale funding arrangements. Exhibit 4 provides an analysis of its credit risk and the level of provisioning. Impaired loans carried on the balance sheet have shown no material increase and are well provided for.

Loans are categorised from A to C, indicating varying levels of risk, with A being the least risky and C posing the highest risk.

Out of the total gross loans and advances of £395.0m in H124, £33.3m were classified as stage 3 and overdue by 30 days (end-FY23: £32.5m). As a percentage of the gross loan book these represented 8.4% (compared to 8.5% at end-FY23 and 9.4% at end-FY22). During H124, Manx increased its provisions against stage 3 loans by £2.6m, taking cover to 66%, up from 60% at end-FY23 (55% at end-FY22). At end-FY23 (no H124 data is available), including assets held as collateral, stage 3 loans were fully covered.

Note, stage 1 loans are not deemed credit impaired with payments up to date to 30 days. Stage 2 loans are not deemed credit impaired, but payments are over 30 days overdue. Stage 3 loans are deemed credit impaired, and this includes all loans where payments are more than 90 days overdue.

Exhibit 4: Credit risk analysis

£m

H124

FY23

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Grade A

352.4

352.4

342.0

342.0

Grade B

9.3

4.5

13.8

7.8

3.7

11.5

Grade C

0.0

28.7

28.7

0.0

28.8

28.8

Allowance for impairment

(0.3)

(0.0)

(22.0)

(22.3)

(0.2)

(19.4)

(19.6)

Carrying value

352.2

9.2

11.3

372.7

341.8

7.8

13.1

362.7

Impairment coverage

0%

0%

66%

6%

0%

0%

60%

5%

Current

340.7

340.7

333.7

333.7

Overdue < 30 days

11.8

11.8

8.2

8.2

Overdue > 30 days

9.3

33.3

42.5

7.8

32.5

40.3

Total

352.4

9.3

33.3

395.0

342.0

7.8

32.5

382.3

Collateral

N/A

13.4

Collateral coverage

N/A

41%

Total impairment and collateral coverage

N/A

101%

Source: Manx Financial Group

There was a slight increase in the share of loans overdue by 30 days, to £42.5m (end-FY23: £40.3m) or 10.8% of total gross loans (end-FY23: 10.5%), but this remains consistent with the past three years (average), as does the percentage of gross loans classified as stage 2 and 3. This underscores the quality of the loan book and reflects the credit strength observed in the industry.

Exhibit 5: Overdue loans and impairment allowance

Exhibit 6: Stage 2 and 3 as a percentage of gross loans

Source: Manx Financial Group

Source: Manx Financial Group

Exhibit 5: Overdue loans and impairment allowance

Source: Manx Financial Group

Exhibit 6: Stage 2 and 3 as a percentage of gross loans

Source: Manx Financial Group

PAL is attractive financially and strategically

PAL is the UK’s leading automotive repair point-of-sale finance provider and distributes through prominent national organisations such as Halfords and Formula One. Prior to acquiring its initial 50.1% interest in PAL in September 2022, Manx had worked with the company for some years, providing it with finance through Conister bank. As a result, it knew the management well and had a good understanding of PAL’s business.

The PAL acquisition was a significant transaction for Manx, with the £4.2m paid for the initial 50.1% stake representing almost 15% of end-FY22 equity. As part of the transaction, Manx retained an option to buy the remaining 49.9% stake for a variable cash consideration. The variable consideration was set at two times the average PAL net profits in the three years to end-2024, capped at £5m and with the option then to be exercised at any point until PAL declared its dividend for FY26.

However, an agreement with the PAL minority shareholders has allowed Manx to bring forward its acquisition of their holding, and this was completed during September. The consideration was £5m, which Manx estimates will represent a saving of c £4m in the cost of acquiring the additional stake compared with the terms of the option. The savings estimate is primarily based on Manx’s expectations for PAL’s financial performance in the FY24–26 financial years, and the dividends that may otherwise have been paid to the PAL minority shareholders. This indicates an expectation of PAL’s earnings over FY24–26 of up to £8m in aggregate. As a result, the acquisition, in its entirety, will have been fully self-financed by the earnings of PAL at a prospective multiple of less than 4x earnings. Moreover, the minority acquisition should be immediately accretive to earnings and Manx is very optimistic for PAL’s further growth.

Accretion to earnings and book value

Based on the FY23 results, for which there is full disclosure available, assuming that the group had owned 100% of PAL throughout the year, and assuming foregone interest on the additional investment at 5% pa, we estimate that EPS would have been 12% higher at 5.13p rather than the 4.59p reported. The accretion is at a similar level for H124.

The transaction is also accretive to BVPS because the cash consideration has no impact on shareholders’ equity while the equity attributable to shareholders increases (because of the elimination of the PAL minority interest). The return on BVPS also increases because the earnings accretion is greater than the BVPS accretion.

Tangible book value per share (TBVPS) is reduced by the increased goodwill on the transaction, but the return on TBVPS rises materially.

The returns on BVPS and TBVPS in the table below are based on closing book values to better represent the full year impact.

Exhibit 7: PAL earnings and book value accretion (based on FY23 data)

£m

FY23 reported

Annualised adjustments

FY23 pro forma

With 50.1% ownership

If Manx owned 100%

%

Income statement

Profit before tax

7.0

(0.3)

6.8

Income Tax

(0.9)

0.0

(0.9)

Net profit

6.1

(0.2)

5.9

Minority interest

(0.9)

0.9

0.0

Net attributable profit

5.3

0.6

5.9

EPS (p)

4.59

5.13

12%

Balance sheet

Net assets

36.0

36.0

Minority interest

(1.0)

1.0

(0.1)

Attributable net assets (BV)

34.9

35.9

Intangibles

14.8

4.0

18.9

Tangible net assets (TBV)

20.1

17.0

Diluted BVPS (p)

22.4

23.1

3%

Diluted TBVPS (p)

12.9

10.9

-15%

Return on closing BV

15.1%

16.5%

16bps

Return on closing TBV

26.3%

34.7%

Source: Manx Financial Group FY23 data, Edison Investment Research forecast pro-forma. Note: We have assumed the cash consideration of £5m is funded with cash and that interest is foregone at 5% pa or £250m pa pre-tax. We have assumed the interest cost is tax deductible at the 10% rate that applies to Manx’s Isle of Man banking activities.

The increase in goodwill is at the group level and, therefore, should have no impact on Conister Bank’s capital ratios.

Valuation

In this section we compare Manx with a selection of diverse small- and mid-cap UK banks and specialist lenders. As no consensus forecasts are available for Manx, we have relied on recently reported data, including reported fully diluted FY23 EPS of 5.3p, the average ROE in the three years to end-FY23 and diluted book value per share.2

  Manx has outstanding bonds amounting to almost £3m nominal that are convertible into ordinary shares at various prices of between 8p and 9p per share.

On this basis, Manx shares are trading at a clear discount to peers based on 2023 P/E and P/BV metrics, despite generating a well above average ROE. While Manx assumes a conservative payout ratio (c 10%), reflecting its growth trajectory, FY23 DPS increased by 21%, and relative to peers its dividend yield has become increasingly attractive. Close Brothers has suspended payments to rebuild its capital base ahead of expected remediation costs linked to car finance commissions, Metro Bank is yet to move into sustained profitability and the Vanquis Bank dividend reflected in the table below is like to be substantially cut from the 6.0p trailing distribution given its accounting restatements in respect of loan provisioning.

Exhibit 8: Peer comparison table

Price (p)

Market cap (£m)

P/E 2023 (x)

P/BV CY1 (x)

P/BV CY2 (x)

ROE CY1 (%)

ROE CY2 (%)

Trailing dividend yield (%)

Close Brothers

391

587

6.3

0.4

0.4

5.1

5.6

0.0

Metro Bank

72

480

N/A

0.5

0.5

(4.1)

6.5

0.0

OneSavings Bank

391

1,474

5.3

0.8

0.7

15.6

16.4

8.2

Paragon

768

1,589

8.8

1.2

1.1

14.2

14.3

4.9

Vanquis Bank

58

149

8.1

0.2

0.3

(2.0)

4.0

10.3

Manx

16

19

4.6

0.7

0.7

14.7

14.7

2.8

Average

716.5

6.6

0.6

0.6

7.3

10.3

4.4

Source: LSEG Data & Analytics, Edison Investment Research. Note: Priced at 18 October 2024.

In Exhibit 9, we visually analyse the relationship between ROE and P/BV for all peers, constructing a regression line for comparison. We have based this on forward looking data (CY2) so as to better reflect more normalised levels of profitability as some of the current distortions (accounting restatements, remediation payments) drop out. It is worth noting that for Manx, we utilise its diluted book value, while for peers, undiluted values are applied. Our observation indicates that Manx trades slightly below the regression line. To trade closer in line with peer valuations, Manx would need to be trading closer to 0.8x book, implying c 18% upside from its current share price.

Exhibit 9: ROE versus P/BV

Source: LSEG Data & Analytics, Edison Investment Research. Note: Priced at 18 October 2024.


Exhibit 10: Financial summary

Year-end 31 December

FY19

FY20

FY21

FY22

FY23

£m except where stated

Profit and loss

Net interest income

17,929

15,470

17,980

24,352

32,361

Net commission income

(1,630)

384

1,282

1,150

(3,330)

Other income

233

551

785

571

2,452

Total operating income

16,532

16,405

20,047

26,073

31,483

Total operating expenses

(11,632)

(11,394)

(12,789)

(16,890)

(20,305)

Operating profit pre impairments & exceptionals

4,900

5,011

7,258

9,183

11,178

Impairment charges on loans

(1,900)

(3,950)

(4,360)

(3,990)

(4,135)

Associates

124

54

32

18

0

VAT recovery

(101)

906

113

0

0

Operating profit post impairments

3,023

2,021

3,043

5,211

7,043

Non-recurring items

0

0

1

0

0

Profit before tax

3,023

2,021

3,044

5,211

7,043

Corporation Tax

(350)

(53)

(234)

(537)

(903)

Tax rate

12%

3%

8%

10%

13%

Profit after tax

2,673

1,968

2,810

4,674

6,140

Minority interests

0

(33)

(16)

(343)

(852)

Net income attributable to equity shareholders

2,673

1,935

2,794

4,331

5,288

Shares and per share ratios

Average basic number of shares in issue (m)

131.1

119.0

114.3

114.8

115.3

Average diluted number of shares in issue (m)

172.8

155.5

150.8

153.8

155.7

Period end shares in issue (m)

131.1

114.1

114.3

115.1

116.2

Reported EPS (p)

2.04

1.63

2.44

3.77

4.59

Reported diluted EPS (p)

1.66

1.35

1.96

2.93

3.51

Reported DPS (p)

0.00

0.00

0.24

0.38

0.46

NAV per share (p)

12.2

14.4

15.7

17.7

20.7

Tangible NAV per share (p)

9.4

10.1

10.7

10.7

13.6

Income ratios and per share

Net interest/average loans

10.9

8.3

8.5

9.4

9.9

Impairments /average loans

1.2

2.1

2.1

1.5

1.3

Cost income ratio

70.4

69.5

63.8

64.8

64.5

Return on average equity

12.7

8.7

11.8

15.9

16.4

Return on average TNAV

16.9

12.3

17.6

28.6

32.6

Balance sheet

Net customer loans

179,370

193,143

229,251

291,475

362,653

Other assets

73,517

74,818

79,502

87,786

118,052

Total assets

252,887

267,961

308,753

379,261

480,705

Total customer deposits

209,933

218,285

253,459

304,199

390,421

Other liabilities

20,635

27,241

30,309

45,292

54,300

Total liabilities

230,568

245,526

283,768

349,491

444,721

Net assets

22,319

22,435

24,985

29,770

35,984

Minorities

0

84

56

189

1,041

Shareholders' equity

22,319

22,351

24,929

29,581

34,943

Reconciliation of movement in equity

Opening net assets

Profit in period

2,673

1,968

2,809

4,674

6,140

Other comprehensive income

(77)

(292)

236

538

318

Ordinary dividends

0

0

(185)

(217)

(342)

Minority changes from subsidiaries

0

(1,560)

(310)

(210)

0

Closing net assets

22,319

22,435

24,985

29,770

35,984

Balance sheet ratios

Loans as % deposits

85.4

88.5

90.4

95.8

92.9

Loans to equity (x)

8.0

8.6

9.2

9.7

9.8

Stage 3 as % loans

3.5

7.2

4.4

4.5

3.6

Impairments as % stage 3 loans gross

45.3

34.7

47.8

49.2

60.4

Total capital ratio (%)

16.9

19.1

19.1

15.1

15.9

Source: Manx Financial Group, Edison Investment Research

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Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Manx Financial Group and prepared and issued by Edison, in consideration of a fee payable by Manx Financial Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Dowlais Group — Driveline – the strong core

Softness in the automotive markets (see Stellantis’s recent update) is weighing on sentiment in the auto sector forecasts and has led us to trim our FY25 forecasts. Dowlais management is currently reviewing the options for its smaller Powder Metallurgy division. An exit would leave GKN Automotive dominated by the higher-quality Driveline business (60% of GKN Automotive sales) and its Chinese joint venture (JV). Assuming proceeds of c £700m (latest NAV £860m), this would leave the shares trading on a pro-forma FY25 EV/EBITDA of c 2x.

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