Mortgage Choice Limited

An update on Half Yearly Result:Mortgage Choice Limited’s (ASX: MOC) share price climbed up 8.511% on 21 February 2019 following the release of H1 FY2019 result report. As per the release, the group reported Cash NPAT of $7.14 Mn in 1HFY19, showing a decline of 43% on PCP basis. Resultantly, EPS stood at 5.7 cps in 1HFY19 against the prior corresponding period where it was at 10.0 cps, displaying a decrease of 43.0%. It was mainly impacted by the adoption of a new franchisee remuneration model structured to increase the quantum paid to franchisees (in response to market changes) from 1 August 2018 and reduce the volatility in its earnings. As the Board of Directors have decided it is prudent to retain a proportion of the group’s earnings to address the uncertainty arising from the Royal Commission’s recommendations regarding broker remuneration. Therefore, the Board of Directors declared fully franked interim dividend of 3.0 cents per share to its shareholders, exhibiting downfall of 66.7% on a PCP basis. It will be paid on 15 April 2019 with the record date of March 29, 2019 and ex-date of March 28, 2019. Moreover, the group also announced the appointment of Mr. Dharmendra Chandran as the new director.
 

Financial Summary (Source: Company Reports)

In its lending book during 1HFY19, loan portfolio increased by 1% to $54.5 Bn (PCP: $54.0 Bn) and settlement decreased by 12.1% to $5.3 Bn (PCP: $6 Bn), whereas in its financial planning, funds under advice increased by 28.8% to $816.9 Mn (PCP: $634.2 Mn), premiums in force increased by 8.5% to $28.9 Mn (PCP: $26.6 Mn), and financial planning gross revenue increased by 3.3% to $5.8 Mn (PCP: $5.6 Mn).

The settlement volumes were majorly impacted by the slowing property and home loan markets. Further tightening in lending policies delayed the submission of loan applications and the uncertainty driven by the Royal Commission’s review of broker remuneration had impacted Mortgage Choice’s ability to recruit new franchisees and had dampened the appetite of existing franchisees to invest in their business for the short term. Additionally, Mortgage Choice had adjusted its guidance for FY2019 Cash NPAT to be between $14 and $15 Mn down from $16.5 Mn due to falling in commission revenue. It also expects loan settlements will be approximately 10% lower than FY2018 settlements.

Meanwhile, the stock has generated a negative YTD return of 26.94% and now looks promising at current levels. In the last three months, the stock has fallen by about 44.27% and the downward trend is continuing. Given the mix of scenario, we have a wait and watch view on the stock at the current market price of $0.765 (up 8.511% on 21 February 2019) as we await further growth catalysts that can mitigate the prevailing downtrend despite the rise of 1% in its Lending segment’s loan book in 1HFY19 as compared to the prior corresponding period and recorded 28.8% growth in Financial planning Funds Under Advice over PCP.
 

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