Sunday share tips: Immupharma, PCF Bank

For the ‘Inside the City’ column in the Sunday Times, Sabah Meddings wrote a “cautionary tale” about former biotech darling Immupharma, which last year saw its shares rise 227% over a year.

That status as one of Europe’s top biotech plays was short-lived, however, with the shares having a tumultuous few months, closing down another 11.7% on Friday to a record low of 17.9p - a far cry from their all-time high of 190p.

Meddings asked what went wrong with the firm, which had promised to supply products to help the five million people suffering from the autoimmune disease lupus.

The only new drug approved for lupus treatment in the last four decades - a GlaxoSmithKline product - has some seriously unpleasant side effects, and AstraZeneca’s proposed new treatment failed phase 3 trials in August.

But Immupharma’s rockstar treatment hit a rather serious road block, in that it did not appear to work.

The AIM-traded firm said it had “missed its primary end points” on 17 April - in other words, patients on the Lupuzor treatment did not show any significant improvement compared with placebo.

Meddings said it was a disaster for Immupharma, which had little else in its pipeline, and saw its shares crash 77% in a single day.

Volatility does come with the territory in biotechnology, to be fair, with firms such as Shield, Summit and Faron also failing to deliver on early promises.

However, what made the Immupharma saga different was that, just weeks before the failed trial results, the firm raises £10m from investors in a cash call at 144p per share.

Raising funds ahead of trial results is normal for drugmakers, to ensure there is cash in the bank for other projects should the star treatment fail - but Immupharma didn’t have any other projects.

Meddings asked why Immupharma didn’t wait for positive results before the fundraise? A positive outcome would have seen the shares surge, leading it to be able to raise a higher amount of cash, and on better terms.

Now, with the future of Lupuzor all but written off, the company has between £11m and £13m with which to “plod along” for several more years.

The company did post a corporate update on Friday, though Panmure Gordon - which has set a price target of 8.2p on the stock - said the announcement did nothing to progress Immupharma’s investment case.

It did reveal that it had poured £2m into cancer drug company Incanthera, which is also chaired by Immupharma chairman Tim McCarthy, and said trial patients already on Lupuzor could continue to take it.

“Despite McCarthy’s assertions that Lupuzor still has “blockbuster potential”, investors who ploughed £10m into the company just before it lost momentum might well ask exactly what potential Immupharma has left,” Meddings concluded.

Over in the Mail on Sunday’s ‘Midas’ piece, Joanne Hart looked at challenger banks, and specifically PCF Group - a company that has been in business for almost 25 years, but has only been a bank for the last year or so.

The firm was established in 1994 by Australian Scott Maybury, who remains in charge, and began life as an asset finance house, lending money to small businesses to pay for vehicles and tools.

Over time, it expanded into the consumer market, financing second hand cars.

Those loans were funded by borrowing from banks - a solid model until the financial crisis hit, at which point the lenders shut up shop and Maybury was forced to downsize PCF Group.

By 2012, the firm was reportedly intent on becoming its own bank, applying for its banking licence which was approved last year.

PCF has now been taking deposits since August 2017.

According to Hart, that move was widely approved by both savers and borrowers, with £140m in deposits already being received by the now-bank.

It was also targeting the kinds of customers other technology-based challenger banks were not, offering postal accounts, which appeal to certain older demographics.

That success in savings has led to a more flexible approach to lending, as the cost of paying depositors is significantly less than how much PCF used to pay banks for borrowing.

Total lending to both businesses and consumers has now reached £200m, up from £146m in the year to September 2017, with new lending almost doubling.

In lending, as in saving, Maybury has established a certain niche for the company, specialising in loans for owners of classic cars, motorhomes and horseboxes.

But the firm still remains cautious in its niche lending, with default rates said to be relatively low.

Looking ahead, PCF has set itself a lending target of £350m by 2020, and £750m by 2022, while focussing on higher quality borrowers, and targeting £600m in savings deposits over the next four years.

And City brokers are on board as well, according to Hart, with analysts expecting profits of £5.2m in the year to 30 September, rising to £8m in 2019 and £10m in 2020.

The company does pay a small dividend, with 0.3p per share expected this year and 0.4p next year - but Hart said Maybury prefers to pour surplus cash back into the business.

“PCF has had a promising first year as a bank but there is plenty more growth to come,” Hart wrote.

“The group is attracting thousands of new savers and borrowers and Maybury is experienced enough to keep bringing in the business while keeping a weather eye on the economic climate.

“At 37p, the shares are a buy.”