Equity release group Sovereign Reversions turned a £248,000 loss into £135,000 pre-tax profits last year and says new regulation will enhance growth.

AIM-quoted Sovereign buys homes cheaply from the elderly who can then live on in them on below-market terms until death, when the company can dispose of them commercially. In the year to April, Sovereign's portfolio grew 10.3 per cent to £51.4 million, since when it has increased further with May's purchase of 112 shared equity loans for £3.2 million.

Net assets grew four per cent to 344.6p a share, with embedded value, assuming vacant possession, up 6.3 per cent to 530.2p a share. Earnings, based on profits after revaluation transfers, rose 42 per cent to 12.4p a share, net cash flow increased 154 per cent to 22.2p a share and dividends were lifted eight per cent to 2.7p a share.

Chief executive Graeme Marshall says Sovereign is increasing borrowings to push up its productive assets. Gearing rose from less than one per cent to eight per cent in the last financial year and is now nearer 15 per cent following May's acquisition, which he says gives the company a high proportion of bespoke retirement housing units.

Marshall, who hints further deals may be in the offing, argues planning restrictions will perpetuate a shortage of suitable accommodation, which is bullish for Sovereign. He also stresses the significance of new regulations bringing home reversions under the Financial Services Authority.

Sovereign, which took part on informal industry talks with Government about these changes, expects them to come into force in mid-2007. He contends formal regulation will give independent financial advisers the confidence to market home reversions, a sector of which they have hitherto been wary, and argues this could trigger dramatic growth by 2010.

At 325p, Sovereign's shares have risen a modest 14 per cent since Growth Company Investor's recommendation a year ago. The pace could quicken.

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