Dealing with debt can be profitable if you know where to invest.
'Creditors have better memories than debtors.' Benjamin Franklin
The rising tide of personal debt has been well reported. When creditors call to collect, many people are finding that they do not have the ability to pay.
Often they turn to debt management companies like Debt Free Direct
(LSE: DFD)
, Debt Matters
(LSE: DEBT)
and Debts.Co.UK
(LSE: DETS)
.
One of the main sources of income for such companies is the management of Individual Voluntary Arrangements (IVA). Business has been booming and investors have been bidding up the share prices of these companies to reflect the expected growth.
One recently floated Scottish company currently residing at the lower end of this scale of high valuations is Invocas
(LSE: INVO)
.
The Scottish equivalent of an IVA is a Protected Trust Deed. Invocas has been building its team of insolvency practitioners to manage these deeds, through a programme of acquisition and recruitment.
Invocas released its maiden interim results as a listed company last week. They show a company in good health, with net cash of around £2.5m on the balance sheet.
Analysts are forecasting earnings of 8p a share for the whole of this year, which at a share price of 177p puts the company on a price/earnings ratio of 22. This is modest compared to some of its peers which sport PER's of as much as 50.
Even though Invocas appears to exhibit value compared to its peers, it is by no means residing in the bargain bucket. Some future growth is clearly already in the price and an investor buying the shares now will need to believe that the need for one-stop debt management services is set to keep growing from here.
The company Chairman certainly thinks growth will continue saying: 'since the period end, trading has continued to be very strong. New trust deed appointments signed in October and November are up 44% && confirming the scale of the market and opportunities available to us.'
He gives us a clue about the Invocas growth strategy by adding: 'The Board continues to assess a number of acquisition opportunities.'
Of course, it could all go wrong from here. Interest rates could fall, thus easing pressure on financially overstretched consumers. Or more debtors may decide it makes sense to use charitable debt advice organisations such as the Consumer Credit Counselling Service before they go down the IVA route.
However, judging by some of the broker forecasts for Invocas, this scenario is not widely anticipated.
Kevin owns shares in Invocas
