Mortgage Choice Limited
The company announced its results for FY 2015 which show that it managed to take advantage of the industry tailwinds and grew its core business significantly while continuing to transform itself into a full-scale financial services company. Among the highlights were record settlement volumes totalling $ 11.5 billion up 10.6% from the previous year. The loan book hit $ 49.5 billion which was 4.6% higher than the previous year. Housing loan approvals worth $ 13.4 billion were written during the year compared to $ 12.2 billion in the previous year. NPAT on a cash basis was in line with the previous year at $ 18.6 million and the board declared a fully franked dividend of 8 cents per share making a total of 15.5 cents per share which is roughly in line with the previous year. Company CEO John Havell said that the results were strong but more could be done by the company to capitalise on the opportunities thrown up by the strong market. He envisages that Mortgage Choice Financial Planning will break even on a monthly basis in the second half of FY 2016 and as it continues to strengthen and deliver good results, the group as a whole will benefit.
MOC Daily Chart (Source - Thomson Reuters)
The future looks promising as a whole and the company has continued to deliver a broader range of financial services to its customers and the total number of financial advisers has increased to 45 and Mortgage Choice Financial Planning franchises to 34. Growth continues to be strong in Funds under Advice and In Force premiums. Moving forward, the company has established a range of short-term priorities and intends to increase its home loan lead volumes and the number of customers referred to a company financial adviser. In addition, the brokers will be helped to become more productive with the implementation of a new platform for client relationship management.
We believe that the refreshed brand and the ability to achieve growth in many different directions makes this a promising investment for the future. In addition to growth, it is also an attractive income stock with a highly lucrative fully franked dividend yield well in excess of 7%. We would recommend that you acquire the stock and give it a Buy rating.
Flight Centre Travel Group Ltd
A recent high point for the group was the win in its appeal to the Full Court of the Federal Court of Australia against the Australian Consumer and Competition Commission (ACCC) after a legal battle that has lasted for six years. The allegation was that the company had engaged in price-fixing between 2005 and 2009 and had breached the Trade Practices Act 1974. The ACCC said that the group had attempted to induce other airlines such as Singapore Airlines and Malaysian Airlines to stop offering their own airfares at prices lower than what they offer. In 2013, the court ruled against the company and imposed penalties of $ 11 million which will now be refunded to them together with interest. The amount is not particularly large but hopefully the ruling means that the company can continue to do business as in the past without the threat of legal problems hanging over its head.
FLT Daily Chart (Source - Thomson Reuters)
In June, group shares slipped by almost 19% over two days after it announced a shock profits warning estimating that pre-tax profit would be between $ 355 million and $ 365 million compared to the earlier forecast range of $ 360 million-$ 390 million. A number of investors and brokers downgraded the stock to neutral from buy though it is reasonably clear that the loss of value in the share price was due to tax loss selling rather than a revaluation of the stock. Moreover, the company, which is more dependent on bricks and mortar than its online business, has managed to outperform web-based competition because it caters to strong demand from Australians looking to holiday in multiple destinations. It capitalises on the fact that arranging flights and accommodation with a number of stopovers is much more difficult on the Internet.
However, the profits downgrade suggests that outbound tourism in Australia is declining because of the weakening Australian dollar, poor consumer confidence and concerns about rising unemployment. Moreover, competition is intensifying as online travel agents get their act together though this must be offset against the US and UK base which are growing strongly from a low base. Moreover, the financial strength of the company should see it through any headwinds in the near future. At the current price, we see upside in the stock price and recommend a Buy.
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