The company seeks to help Australians in all of their financial needs. It was originally established to help customers with a choice of home loan providers and has now grown into a full-fledged provider of financial services and helps its customers to source car loans, personal loans, commercial loans, credit cards, asset finance and risk and general insurance. It does not itself take on balance sheet or funding risk.
 
The company announced its financial results for the half year ended 31 December 2014 and the results, on par with the previous year, demonstrated its organic strength and its ability to deliver strong growth in profits while investing in network growth and diversified businesses. Among the highlights were, on an IFRS basis, group NPAT of $ 10 million up 3.3% over the previous year EPS of 8 cents per share compared to 7.9 cents per share in the previous year and total group revenues up 11% to $ 97 million. NPAT on a cash basis was $ 9 million which was the same as the previous year. The total loan book reached $ 48.4 billion which was up 4.5% over the previous year and is likely to reach $ 50 billion by the first half of 2016. The annual share of new home loans continued to be the same as the previous year at 3.9%. The fully franked interim dividend of of 7.5 cents per share was the same as the previous year.
 

 
Source: Company Reports
 
 
 
CEO Michael Russell found the results "incredibly pleasing" because they heightened the ongoing strength of the business. He said that over the last six months, the company has increased investment in personnel and technology and, because of this increased investment, HelpMeChoose.com au is well placed to take advantage of seasonal upswings in 2015 and Mortgage Choice Financial is ready for further growth with more than 40 financial advisers on board.
 
The summary of payouts shows commission received of $ 34.98 million (previous year $ 31.72 million) and commission paid of $ 25.53 million (previous year $ 23.05 million). Net origination income totalled $ 9.45 million ($ 8.67 million) and origination payment rose by 0.3% to 73%. Loan writer recruitment incentive paid was $ 0.298 million ($ 0.093 million) bringing the net origination income to $ 9.15 million ($ 8.63 million) making for an increase of 1.1% to 73.8%. Trading commission received was $ 44.27 million ($ 43.94 million) and trading commission paid was $ 26.65 million ($ 25.89 million) making a net trading income of $ 17.61 million ($ 18.04 million). Trading payout (inclusive of the MOC book) rose by 1.3% to 60.2%. The loan writer incentives pushed up the payout ratio on incentive payments but this will end at the end of FY 2015. Increase in settlements lead to an increased share of trail income with franchisees to encourage further business investment from them.
 
The company continues to invest in diversification and growing the numbers of brokers. There was an increase in personnel expenses for HMC and FP and the additional FP support staff will position the business for further growth. HMC is now positioned to take advantage of seasonal uplifts in the second half of FY 2015. Loan writer incentives are estimated to be $ 250,000 in the second half of FY 2015 and finish by 30 June 2015. Total operating expenses are expected to be lower by 8% to 10% because national and highflier conferences are held in the first half of the financial year. The percentage of gross revenues from diversified sources has now grown to 11.5% of total revenues in spite of the considerable growth in broking commissions because of increased settlements. This shows the success the company has had in diversifying while continuing to grow its core business. Over the past five years, the percentage of gross revenues generated by diversifications has grown from 1.4% to 11.5%.


MOC Daily Chart (Source - Thomson Reuters)
 
The divisional results show that settlements for MC were $ 5.7 billion compared to $ 5.1 billion in the preceding half year and $ 5.3 billion in the previous period. Gross profit (IFRS) was $ 32.41 million ($ 31.19 million), gross profit (cash) $ 30.09 million ($ 29.39 million), EBITDA (cash) $ 14.10 million ($ 14.24 million), NPAT (IFRS) $ 10.75 million ($ 10.29 million) and cash NPAT of $ 9.83 million ($ 9.62 million). Year on year growth was 2%. IIMC reported gross profit (IFRS) of $ 1.72 million ($ -0.4 million), gross profit (cash) of $ 1.55 million ($ 1.05 million), EBITDA (cash) of $ -0.69 million ($ -0.23 million), NPAT (IFRS) of $ -0.42 million ($ -0.17 million) and cash NPAT of $ -0.52 million ($ -0.20 million). Year on year growth was -257%.Finally, FP reported EBITDA of - $ 453,000 compared to $ -497,000 in the previous year and cash NPAT of - $ 542,000 compared to - $ 203,000 with a year on year growth of 2%.
 
The economy and the industry
 
Housing finance commitments in Australia are at record levels and provide the company with outstanding growth opportunities. Investment activity also remains at record levels by historical standards though, by the same yardstick, first home buyer activity remains low. The housing market is in an upward cycle with broker usage at 50%. The headwinds for the industry include volatile customer confidence, problems with potential housing affordability and rising unemployment. The tailwinds include historically low interest rates, the encouraging level of broker usage and strong property markets judging by property prices and auction clearance rates.Moreover, the clampdown on lending to landlords has led to a 20 month low in investments by property investors and the tighter credit standards imposed by banks is also having its effect.
 
However, we believe that the growth in franchise numbers, the increased number of loan writers and the continuing investment in diversification all signify healthy future growth. The continued health of the mortgage industry remains positive and we see plenty of upside in this share price of this company as a result. Accordingly, we would rate this stock as a Buy at the current price of $2.29.

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