LONDON Scottish Bank is one of more than 130 UK quoted companies that find themselves in the speciality and other finance sector, a catch-all that includes fund management, consumer credit, insurance, stockbrokers, investment banks, private banks, investment companies and various other weird and wonderful companies.
There are some good, some bad and some ugly, but London Scottish is one of the more interesting stocks in the sector.
Its core business is consumer credit - much of it home collected. A complementary business, carried out through the same branch network, is its third party debt collection, where the company recovers non-performing loans for all manner of larger companies.
It also uses its branch network to provide other services, such as meter reading, to companies that require home visits but which lack a branch network. The company has expan-ded into factoring and leasing for small companies.
The danger with investing in finance companies is that a downturn will hit the business. In the early 1990s, most finance businesses saw profitability built over years destroyed by ballooning bad debts. At this stage in an economic cycle there is such a risk in most finance companies for this reason. …