---

Vanquis faces a challenging endeavour to regain profitability. The company’s attempts to curb lending growth and increase interest rates have had adverse effects on its net interest margin. However, these measures are necessary to prevent straining its IFRS capital.

---

Regulatory Challenges and A Shift in Business Model

Vanquis, a specialist lender that has been grappling with regulatory issues and a fragile share price, finds itself in a precarious position. The company’s historical reliance on the increasingly untenable doorstep lending model has led to troubles, reflected in a share price that is now only a fraction of its net asset value. While the majority of its regulatory problems appear to have been resolved, Vanquis is grappling with additional administrative burdens related to past claims. Consequently, the company forecasts that the costs associated with these complaints will significantly impact its profitability in 2024.

Vanquis has taken significant steps to limit its lending growth to conserve its IFRS capital. These measures, coupled with increased interest rate costs, have resulted in the net interest margin falling to 19% from 21.2% in 2022. However, this also marked a positive movement for the return on tangible equity (ROTE) into the positive territory of 3.2%. The management aims to elevate this figure to the mid-teens by 2026.

A Silver Lining Amidst the Clouds

Despite a downbeat forecast by the management, not all is doom and gloom for Vanquis. The absence of additional negative news on results day was seen as a positive sign by broker Peel Hunt. While conventional valuation measures might not be applicable in this case, the price to tangible net assets ratio of 0.3 aptly mirrors the fall in the company’s fortunes.

Vanquis is currently in a challenging situation, with its market value standing at £144mn and its dividend yield registering a high 10.7%. If the company manages to navigate through the administrative costs related to past claims, it stands a chance of improving its pre-tax profit and earnings per share, as shown in the past.

Given the high income yield and low price to the net asset value, Vanquis could potentially emerge as a lucrative option for investors with a high-risk appetite. However, given the ongoing administrative issues and the associated costs, caution is advised in the near term. While the current landscape is challenging, Vanquis’s strategic measures paint a picture of potential recovery and growth in the long-term, making it a stock to watch in the coming years.