Hits: 10

29 April 2020

Morses Club  – Loan facility

Share Price 65p

Mkt Cap £85m

Conflict Disclosure: I Hold

 

  • Facility The term of the RCF has been extended with the existing syndicate of banks to Nov 21 while the facility has been reduced from £50m to £40m as the extra £10m hasn’t been used in the last 12 months and is no longer needed with reduced lending. 100k customers (almost half) now registered for the remote lending service and no staff furloughed.

 

  • Estimates Originally the business was going to make £16m to Feb 2020. 

 

  • Valuation The shares have now almost doubled from their low this month and are trading around the c£66m NAV

 

  • Conclusion With so much uncertainty NAV is perhaps a fair price for today, but as the company recovers, which seems likely, the shares could double. However there is no update on collections today.

16 April 2020

Morses Club – Launch of Remote

Share Price 44p

Mkt Cap £58m

Conflict Disclosure: I Hold

 

  • Update Remote lending is launched using the existing technology platform. 20% of collections are now made using it. Collections are running at 74% of pre COVID 19 expectations.

 

  • Estimates Pre COVID the company was expected to make in the region of £16m PBT.

 

  • Valuation The shares have recovered from their lows but remain at a 20% discount to TNAV.

 

  • Conclusion The company is likely to come through this with its digital and remote products having been launched in a storm. The business model could change substantially for the better at a faster rate than originally anticipated. Visibility is low today, but the darkest moment is before dawn.

30 March 2020

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Morses Club  – Covid 19 Update 

Share price 40p

Mkt Cap £53m

Conflict Disclosure: I Hold

Update 41% of collections were previously collected remotely. The company is no longer extending credit to new customers. Dividend and guidance suspended. Over 50% of customers are in receipt of state benefits or pension and a significant proportion are self-employed.

  • Balance Sheet Net loan book at August 2019 was £72.2m. Net tangible assets £49.6m. Net debt £15.2m. Cessation of lending is helping cash flow and positive negotiations continue with funding providers.
  • Valuation Close to book value.
  • Conclusion Modest leverage suggest the company will survive and this may ultimately accelerate the digital offering. But that will be the later. There will be more pain first.

17 March 2020

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Morses Club  – Covid 19 Update 

Share price 40p

Mkt Cap £53m

Conflict Disclosure: I Hold

Update 41% of collections were previously collected remotely. The company is no longer extending credit to new customers. Dividend and guidance suspended. Over 50% of customers are in receipt of state benefits or pension and a significant proportion are self-employed.

  • Balance Sheet Net loan book at August 2019 was £72.2m. Net tangible assets £49.6m. Net debt £15.2m. Cessation of lending is helping cash flow and positive negotiations continue with funding providers.
  • Valuation Close to book value.
  • Conclusion Modest leverage suggest the company will survive and this may ultimately accelerate the digital offering. But that will be the later. There will be more pain first.

11 March 2020

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Morses Club – Trading Update 

Share Price 105p

Mkt Cap 134m

Conflict Disclosure: I Hold

  • Update Gross loan book is down 2.4%, but with impairments at the lower end of the range the performance of the HCC business is described as “strong”. The online portal was launched in February 2019 and is gathering momentum with £22.9m balances on Morses Club Card. Losses are higher than originally expected but digital remains on track to deliver a substantial improvement in losses during 2021. Adjusted PBT will be reduced by 18%-23% against consensus.
  • Estimates EPS to Feb 2020 consensus forecast is 12.4m. 20% lower would be c 10p. Dividend forecast is 7.9p which sound like it will remain unchanged.  
  • Valuation PE c 10X and yield 7.5%.  NAV 74p/share
  • Conclusion Turning a cash generative business into a growth business is a difficult path to navigate so this could be seen as “investment” but in the world of non standard lending I expect the market will take a dim view.

10 October 2019

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Morses Club – H1 Results 

Share Price 115p

Mkt Cap £151m

Conflict Disclosure: I Hold

  • Results Loan Book growth of 6.2% to £72.2m and revenue is up 15% to £66.3m. Impairments reduced from 21.9% revenue to 19% revenue while the cost base has increased from £18.7m to £29.5m resulting in a decline in operating profit from £11.3m to £8.1m. Adjusted EPS is down 10.6% to 5.9p.  Digital lending achieved £6.9m of revenue (2018 £0.3m) but lost £3.5m adjusted. Customer number were 52,000 with a loan book of £4m. Debt is £22.7m on equity of £70.3m and the company is renewing its financing which expires in August 2020.
  • Estimates Forecasts were anticipating a 9% increase in PBT to £21.7m this year. This will come down today. Adjusted PBT in H1 was £9.6m.  H2 is traditionally stronger with the Christmas period.
  • Valuation Adjusted ROE is 22.6%, down from 25.6% and the shares trade at 2.1X book value. PER pre downgrades is 8.5X and yield 7.2%
  • Conclusion The company is undergoing a transformation which requires investment.  The yield may support the shares in the short term but the market is unlikely to believe in the digital product until profits are delivered. Unlike Monzo.

25 June 2019

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Morses Club – AGM 

Share Price 150p

Mkt Cap £195m

Conflict Disclosure : No holding

  • Update In core Home Collected credit market conditions are challenging but trading is in line with expectations. Customer numbers are stable and credit issued is modestly down as customers are borrowing less frequently. The two acquisitions of a digital current account provider alongside a provider of online loans in the non standard credit market are expected to be earnings accretive in the year to Feb 2021. This brings a 25% increase in customer numbers.  
  • Estimates  Consensus looks for £22.7m PBT in the year to Feb 2020 which is 14.1p EPS and the 7.8p dividend of last year will be at least maintained.
  • Valuation PER 10.6 and yield of 5.2%
  • Conclusion This is the year of transition for MorsesClub. The core business is high ROE, cash generative, and low growth. Which is why the shares are cheap. And they are incubating a baby unicorn in the stable which has the ability to change the prospects materially 12 months from now. There is nothing in the share price for that.

24 June 2019

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Morses Club – Acquisition 

Share Price 155p

Mkt Cap £201m

Conflict Disclosure : No holding

  • Acquisition Morses acquires U Holdings Limited which has 20,000 digital current account holders for £5.8m cash up front and £5m deferred.  The business had £1.7m of turnover last year and lost £4m but post acquisition is expected to lose £1.4m-£1.7m over the rest of the year to Feb 2020 and subsequently be earnings enhancing.
  • Estimates  Consensus looks for £22.7m PBT in the year to Feb 2020 which is 14.1p EPS and an 8.4p dividend.  The statement says the dividend will be at least maintained at 7.8p so dividend estimates may come down a little while the PBT estimates for 2020 may come down by c7%.
  • Valuation PER 10.6 and yield of 5.7% before changes for the acquisition
  • Conclusion This is a pivotal moment for MorsesClub as it transition from being a reliable high ROE home collected credit business to a growth business driven by digital banking. The gap between the PER of 11, yield 5% and Monzo’s valuation is large enough to drive a flock of highly paid bankers through it. This growing business will attract a new breed of investor which will drive the valuation.  Investors will do well.

2 May 2019

Morses Club – FY Results 

Share Price 177p

Mkt cap £230m

Disclosure: No holding

  • Results – A modest increase in revenue to £117m form a loan book of £73m at the year end (Feb 18 £72.8m). Impairments were 22.4% (2018 22.5%) and the cost income ratio was 57.4% resulting in 14.6% PBT growth to £22, and EPS of 13.6p. Facilities have been increased to £55m from £40m and the company has acquired CURO to accelerate its alternative product offering post the year end. Outlook is confident despite the loan book being modestly lower since the year end. ROA 23.4% ROE 29.6%
  • Estimates Results are in line with expectations and there is little to suggest any change to the expected 11% EPS growth in the year to Feb 2020.
  • Valuation PER 11.7 Yield 4.8% Price/Book 3.5X for 29% ROE
  • Conclusion Impeccable results from a well run company. The strong technology backbone is now set to be leverage while competitors are in a state of disarry. Thisw feels a biut like Provident 13 years ago just as it was launching Vanquis.  Even though the CFO is leaving shareholders will do well.

26 February 2019

Morses Club – Acquisition 

Share Price 159p

Mkt cap £206m

  • Acquisition Morses Club has acquired Shelby Finance for £8.5m payable 50% in advance and 50% over 5 months for gross receivables of £19m. In a desperate bid to hold back analysts from raising expectations the company says it is not expected to add to earnings in the first 12 months. This is an online lender which will fit on Morses Club’s digital platform as it moves from the cash cow home collected business into the growth markets
  • Estimates Look for 26% EPS growth in the year to Feb 2019 tempered to 13.7% in the year to 2020.
  • Valuation ROE is c. 23% and price/book value 3.1X.  PER 10.4X and yield 5.5%. By way of comparison Provident has a chance of making a positive ROE and trades at 2.3X book value. PER 11.6 and yield 5.7%.  NSF has reported negative ROE also in the past and trades at 1X book value. PER 9.2 X and yield 5.9%
  • Conclusion While NSF and PFG throw mud this company is emerging as the winner

31 January 2019

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Morses Club – Acquisition 

Share Price 150p

Mkt Cap £195m

  • Acquisition The company has acquired the family business Eccles Savings and Loans with a £1.4m loan book.  Typically the company may pay around book value for the loan book though no acquisition price is disclosed.
  • Estimates This will not be material to forecasts
  • Valuation PER 9.9X, yield 5.9% for 14% earnings growth
  • Conclusion The company is now resuming its acquisition strategy as the increasing compliance burden and technology burden pressurises small businesses in the sector.  The shares have traditionally been cheap because of the regulatory uncertainty.  The FCA High Cost Credit review last year acknowledged the social function the home collected credit providers serve which confirms the regulatory clouds are likely to reduce going forward which should produce a re rating.

3 October 2018

Morses Club – H1 Results  

Share Price 142p

Mkt Cap £183m

·         Strong Returns While PBT grew 6% in the reported numbers on a like for like basis under IFRS 9 PBT grew 14%.  Impairments increased from 21.5% to 21.9% on a like for like basis while the dividend was increased by 12%.  Gearing has reduced to net debt of £5.8m as the company grew its returns from a higher quality customer base as previously indicated.  Strategically Dot Dot loans remains in trial phase as the company engineers a shift to longer duration and higher value loans which carry more attractive returns.  The outlook is confident.

·         Estimates We adjust our forecasts to account for IFRS 9..  At the underlying level we upgrade modestly our full year PBT estimate from £21.6m to £22m as the agent subsidy reduces following last year’s significant agent expansion.  This represents year on year growth of 14%. We also increase our full year dividend estimate from 7.6p to 7.8p.

·         Valuation We are forecasting a 28% ROCE for this year and the company trades at a modest 2.8X book value.  At the current price the PER on next year’s estimates which don’t include anything for the launch of Dot Dot loans or the banking products is 9.6X. The yield also rises to 6%. For now we maintain our 175p price target.

·         Conclusion This company has the best track record of any listed lender with the highest returns as a result.  As new products are launched the rating will increase to reflect a growth rating and investors at this juncture will be well rewarded