Mortgage Choice Limited

Royal Commission’s Recommendations: Mortgage Choice Limited (ASX: MOC) is engaged in the business of mortgage broking, financial planning and associated financial services with a market capitalisation of A$99.37Mn as on 20^th May 2019. In the FY18 half year presentation, MOC mentioned about the Royal Commission recommendation with respect to financial planning and Mortgage Broking.

With respect to Financial Planning, Royal Commission recommended that, in three years’ time, there should be a review by the Government in consultation with ASIC of the effectiveness of measures that had been implemented to improve the quality of advice. Adding to that, the Government had agreed to review the effectiveness of measures to improve the quality of advice. In response to recommendation, the company supports a consultative approach to any assessment of the quality of advice.

Also, Royal Commission recommended that ASIC should consider further reducing the cap on commissions with respect to life risk insurance products.Unless there is a clear justification for retaining those commissions, the cap should ultimately be reduced to zero. Coming to the response, the Government supports ASIC conducting a review and considering the factors identified by Royal Commission while undertaking this review. MOC would continue to monitor the progress towards the review by ASIC to better understand the potential impact on MCFP. The RC recommended a prohibition on the deduction of any advice fee from a MySuper account. The Government had agreed to prohibit the deduction, and the company would continue to monitor the impact this might have on the advice business.

In the recent release, the company updated the market players about the change of interests of substantial holders. The Spheria Asset Management had increased their stake in Mortgage Choice Ltd to 17.78% in comparison to their previous stake of 16.54%.

Key Drivers of Financial Results: Mortgage Choice Limited pointed out the key drivers related to 1HFY19 results. Adoption of a new franchisee remuneration model which have been structured to increase the quantum paid to franchisees and reduce the volatility in their earnings. Accordingly, the company witnessed a decline of 25.4% in gross profit on pcp. NPAT on cash basis stood at $7.1Mn, which is resultant of slow residential credit growth, tightening credit conditions and easing of the property markets as well as economic uncertainty surrounding the Royal Commission.

The net cash inflow from operating activities stood at $6.706Mn in 1HFY19. During the time period, the company made payments of $86.687Mn for suppliers and employees.
 
Profit and Loss Statement (Source: Company Reports)
 
What to Expect From MOU: With respect to outlook, as mentioned in the company’s annual report, it would continue to ensure high levels of support for their franchisees, which includes compliance, training, marketing, IT and business planning.The company pointed out that the new broker remuneration framework would provide franchisees with higher remuneration and reduced income volatility. With respect to brand and customer experience, the company is planning to improve the online customer experience to create advocacy.

Recommendation: It can be said that the company is taking several initiatives towards its operational efficiencies. As per ASX, the company is having annual dividend yield of 15.09% and is trading towards to its 52-week lower level.

However, in the span of one-month, the stock offered return of -10.67% and, on three-month chart, the stock witnessed a return of 4.61%. Therefore, it can be presumed that the stock is quite volatile. Considering the above-stated facts, we advise the market players to closely “Watch” the stock at current market price of A$0.910 per share (up 14.465% on 20^th May 2019). 

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