Improving Capital reserves, diversification and solid portfolio would drive MyState stock
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Last week, MyState Limited (ASX: MYS) had priced $25 million of 10-year Tier 2 subordinated notes under its newly-established Medium Term Note program (MTN), to improve its capital reserves for maintaining solid loan growth. The notes would pay a quarterly interest at a floating rate equal to the three-month bank bill swap reference rate, plus a margin of 5% per annum. The notes would come under Tier 2 capital as per APRA framework and has a term of ten years.
MYS Dividends (Source - ASX)
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More than estimated first half of 2015 results drove the shares of MyState to a five year high of $5.48 on February, but started correcting and declined more than 11% over the last six months as investors were concerned that the rising competition across all levels would impact the group’s margins. The company’s revenues slightly fell by 0.3% to $60.4 million in the first half of 2015, against $60.6 million in first half of 2014, while the net profit after tax slightly improved to $14.9 million in 1H15 from $14.8 million in 1H14. But the group was able to maintain its earnings per share at 17 cents. MyState reported a fully franked interim dividend of 14 cents per share, resulting in the dividend payout ratio of 82%.
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Monthly loan settlements continue to build since 2H14 (Source: Company Reports)
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Meanwhile, Investors should note that, after the transition of Tasmanian banking brand to MyState bank, customer proposition has been better for the group. MyState’s solid sales and distribution efforts enabled it to build a strong portfolio in Australia, with greater mix of low LVR loans as well as better diversification lead to enhanced quality of their home loan portfolio. The group also earlier raised over $300 million RMBS transaction to facilitate its further asset growth. MyState’s residential mortgage lending book had improved over 12% on an annualized basis, much better than loan growth as compared to the regional as well as major banks. The group expects the residential mortgage lending book witnessed a further increase driven by better originations of its mortgage broker channel and diversification.
MYS Daily Chart (Source - Thomson Reuters)
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On an overall note, we believe that the group’s efforts to enhance its banking business coupled with further improving efficiency would drive its second half of fiscal year 2015 performance. Moreover, the improving housing market would also boost its loan portfolio. Mystate is trading at a P/E of 13.24x, which is relatively cheaper as compared to its peers, and has an attractive dividend yield of 6.3%. With the stock trading near its one year low levels, investors who are hunting for beaten down value stocks should consider adding MYS in their portfolio. Based on the foregoing, we give a “BUY” recommendation to the stock at the current levels of $4.53.
MOC’s increased Commission and expanding network would lead to further Industry consolidation
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Mortgage Choice Limited (ASX: MOC) reported an 11% growth on a year over year basis to $10 million in first half of 2015, as compared to $9.7 million for the first half of 2014. The overall loan book rose 4.5% to $48.4 billion in 1H15 as compared to $46.4 million in 1H14, while MOC intends to build its loan book to $50 billion by 1H16. The housing loan approvals worth of $6.9 billion were written during the first half of 2015. MOC’s NPAT increased by 3.3% on a year over year basis to $10million, against $9.7 million during the first half of 2014. Meanwhile, MOC maintained its interim dividends at 7.5 cents per share.
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MOC Daily Chart (source - Thomson Reuters)
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On the other hand, Mortgage Choice stock has corrected more than 32% over the last six months, giving an opportunity to investors to consider investing in the stock. MOC has been making diversified investments in HelpMeChoose.com.au as well as Mortgage Choice Financial planning (improved to 50 financial advisers). For the record, the group has improved its percentage of gross revenue from diversification to 11.5% during the first half of 2015, as compared to 1.4% in fiscal year of 2009. The group is also increasing commission share, to earn more commission through its franchises, which would further drive its organic growth in the coming years. Lower interest rates is estimated to drive the property market, wherein Mortgage choice will be receiving stable and recurring income from bank throughout the loan life as borrowers will be paying their mortgage.
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Investing on diversification and brokers’ growth (Source: Company Reports)
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MOC is operating in a highly fragmented market and its growing network would force the smaller companies to exit the business, further leading to the industry consolidation. Moreover, Mortgage Choice has been maintaining risk free balance sheet, and is trading at cheaper valuation with P/E at 13x and has a strong dividend yield of 7.7%. The stock fell over 12.3% over the last four weeks, giving an attractive opportunity to the high risk investors.
MOC Dividends (Source - ASX)
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Based on the foregoing, we give a “BUY” recommendation to the stock at the current levels of $2.01
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