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Cattles (CTT) – Finals PTP: £165.2m (£132.2m) Divi: 18.05p (16.3p)

While the numbers came in pretty much to expectations, analyst opinion is starting to diverge on future prospects. At the start of the year all the talk was about Cattles picking up custom as the high street banks tightened up selection criteria, retreating from the sub-prime segment as the credit crunch bit.

But questions are creeping in as to whether Cattles can not just grow its loan book (it rose 35% last year to £2.8 billion), but grow it profitably. As the impact of the credit crunch feeds through into the real economy and businesses find it harder to borrow, slowing economic growth, the bears are flagging rising unemployment driving up bad debts.

James Hamilton, analyst at independent broker Numis predicts Cattles’ profits will fall next year (down 15.4% to £139.8 million). The other six analysts covering the stock are predicting profits will rise with Ian Poulter from Landsbanki at the top of the range pencilling in around a 15% gain. But Hamilton’s voice is finding resonance with shares down 16% at 238.3p compared with 284p ahead of the results.

Cattles’ recently appointed new chief executive David Postings stresses that bad debt levels are under control: ‘We don’t see it [loan loss ratio] going out of the target range [8-9%].’ The 2007 loan loss ratio, at 8.4%, came in line with analysts’ expectations but Hamilton is clearly expecting the loan loss ratio to breech the target. ‘It typically takes 18 months for unsecured loans to season on the balance sheet before the level of impairment starts to plateau,’ says Hamilton who has moved from a ‘reduce’ to a ‘sell’ recommendation. ‘Consequently given the huge balance sheet growth in 2007 we would expect the impairment charge to increase materially over the coming year.’

Shares says: Even Poulter now caveats his buy recommendation, flagging the potential impact of ‘surge in unemployment’ (something he is not expecting).

by: Simon Keane