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Blue-Chip

Two Stocks with Good Dividend Yield – Mortgage Choice Ltd and Suncorp Group Ltd

October 19, 2015 | Team Kalkine
Two Stocks with Good Dividend Yield – Mortgage Choice Ltd and Suncorp Group Ltd

Mortgage Choice Limited



Enhancing core business despite pressure and issuing a positive outlook: Mortgage Choice Limited (ASX: MOC) was able to report a 10.6% year on year (yoy) increase of its settlements to $11.5 billion, despite the tough market conditions and APRA regulations impact. MOC loan book improved by 4.6% yoy to $49.5 billion in the fiscal year of 2015. The group approved housing loan worth over $13.4 billion, an improvement from $12.2 billion in prior corresponding period (pcp). MOC’s NPAT reached $18.6 million while a fully franked final dividend of 15.5 cents per share was reported during FY15. The group expects continuing with the ongoing growth of its home loan lead volumes and customers. MOC’s new client relationship management platform is also expected to underpin broker’s relationship. MOC is building its network with its total franchise numbers improving to 456 in FY15 from 433 in FY14 and loan writer count reaching 575 in FY15 driven by Plus One initiative. Mortgage Choice estimates to grow its franchisee revenue by more than 7% during fiscal year of 2016. The shares of Mortgage Choice corrected over 37.36% (as of Oct 19, 2015) in the last six months on investors’ concerns relating to the slowdown impact on its core business and APRA regulations impact leading to a slowdown in the total lending growth. The company has closed its comparison site ‘’Help Me Choose” considering the competition given the populated online market.


Improving home loans settlements and residential loan book (Source: Company Reports)

On the other hand, we believe this is the opportunity to enter the stock, which is trading at an attractive valuation with a cheaper P/E of 11.09x as opposed to sector average of about 13.5 and market average of about 21.6; and has an outstanding dividend yield of 9.2%. Based on the foregoing, we give a “BUY” recommendation for the stock at the current price of $1.675.


MOC Daily Chart (Source: Thomson Reuters)
 

Suncorp Group Ltd.



Cost Optimization efforts and enhancing bank and life business to underpin the stock performance:  Suncorp Group Ltd (ASX: SUN) reported a 55.2% yoy rise in its net profit after tax (NPAT) to $1,133 million in the fiscal year of 2015, given the better bank and Life business despite general insurance pressure. Suncorp’s Bank NPAT surged to $354 million in FY15, as compared to $228 million in pcp driven by better net interest margin (NIM) to 1.85% in FY15 as compared to 1.72% in FY14. The segment’s Bank lending improved to 3.9% despite the tough market conditions showing SUN’s quality, lower risk lending, non-performing loans and risk-weighted assets. The group also enhanced its bank’s lending momentum during the second half leading to an annualized housing loan improvement of over 10% on a year over year basis. Meanwhile, Life business underlying profit improved to $113 million during the period, above the group’s estimations of $90 to $100 million. Life Embedded Value improved over $1.9 billion during the period as compared to $1.76 billion in FY14, while the value of one year’s sales doubled to $25 million. Suncorp intends to derive over $170 million in annual benefits in the 2018 financial year driven by its Optimization efforts. Moreover, SUN estimates to drive more efficiencies from transformation of claims processes, ongoing rollout of the SMART repair network, simplification, business intelligence efforts and through technology and procurement. Suncorp is investing over $75 million for the Optimization program and finishing the restructuring of the Group’s operating systems. SUN is adopting a low risk model to derive growth by maintaining its diversified funding base and A+/A1 credit ratings.


Suncorp’s bank lending growth (Source: Company Reports)

The shares of Suncorp fell about 7.07% in the last three months impacted by market conditions, but rose about 1.24% in the last five days. Still, the stock is trading at a decent P/E of 14.72x and has a dividend yield of 5.83%. We give a “BUY’ recommendation for the stock at the current trading price of $12.94.


SUN Daily Chart (Source: Thomson Reuters)

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