Hits: 14

30 July 2020

Mortgage Adv.Bur.–Trading Update

Share Price 578p

Mkt Cap £299m

Conflict Disclosure: No Holding 

  • Results H1 revenue has increased 4% to £63m, of which 10% was from the acquired First Mortgage business. While Q1 was strong and the number of AR’s increased 1.8% in Q1 to 1,484 the housing market closed during March. 245 AR’s were placed on furlough but since 13 May there has been a “sharp” increase in housing market activity and adviser numbers have recovered to 1,472 by 24 July. The group is currently trading “strongly”.
  • Estimates A 20% revenue fall is anticipated for the current year providing EPS of 18.6p and PBT of £11.8m, recovering to £19.4m PBT and EPS of 32p the following year. The stamp duty changes could bring the 32p EPS forward.
  • Valuation On the recovered earnings in 2021 the shares trade on 18X and 31X trough.
  • Conclusion The closing of the housing market is likely to be one of those events that purges weaker AR’s and will with hindsight be seen as a strengthening event. This may similarly be seen as a reasonable entry point, though 18X is not hugely cheap.

23 April 2020

Mortgage Advice Bureau – FY Results

Share Price 492p

Mkt Cap £254m

Conflict Disclosure No Holding

 

  • Results Revenue up 17% to £143.7m. Gross Profit up 28% to £36.4m. Overhead ratio increased from 10.7% to 12.4% so underlying PBT was up 19% to £18.7m. Adjusted EPS up 17% to 30.1p and basic EPS up 9% to 28.2p. FY dividend is 17.5p (2018 23.3p). The all important outlook says strong start until the end of March and the company has drawn down £12m on the RCF to allow flexibility. Adviser growth started to slow from early March and 196 of the 1473 advisers are now furloughed. Re-mortgage activity has slowed due to loan to value restrictions from lenders. Protection has benefitted from heightened awareness and numbers of telephone advisers are growing.

 

  • Estimates A 35% EPS reduction appears to be the expectation for 202 followed by a recovery on 2021.

 

  • Valuation On the basis of a 35% EPS reduction the shares trade on 27X and yield 3%.

 

  • Conclusion I have no doubt that the company will emerge more efficient and stronger when markets recover. The shares are down 39% which is close to the earnings impact making them still expensive. It depends how long it takes for markets to recover. Lender restrictions may last longer than lockdown so the opportunity may be now or in 6 months’ time.

28 January 2020

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Mortgage Advice Bureau– Trading Update 

Share Price 696p

Mkt Cap £359m

Conflict Disclosure: No Holding

  • Update Revenue up 16% to £143m. Organic growth is declared to be 10% driven by a 14% increase in average adviser numbers. Revenue per adviser fell 3%. PBt is expected to be in line with expectations and cash was £21m, of which £7m is unrestricted.
  • Estimates A 16% increase in PBT is expected to Dec 2019 to £18.1m. This is expected to accelerate to 24% in 2020 which is £22.4m PBT. EPS 35.8p. Dividend 29.2p
  • Valuation PER 19.4X Yield 4.2%
  • Culture A glass door score of 4 evidences a positive culture while the CEO pay was £499k
  • Conclusion I have stressed the earnings this year to find the flaw and have failed. As long as the company continues to expand its network the company continues to be a growing cash generator. That looks unlikely to change, and may be helped by better housing markets this year.

24 September 2019

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Mortgage Advice Bureau – H1 Results 

Share Price 568p

Mkt Cap £293m

Conflict Disclosure: No Holding

  • Results. Revenue up 5% to £61m. PBT up 6% to £7.4m. Adjusted EPS up 5% to 12.3p. Average number of advisers up 13% to 1,242. Gross mortgage lending up 6%. Current trading is in line and the company is confident in achieving its strategic aspirations.
  • Estimates Given the recent acquisition the 11.2% EPS growth to Dec 19 looks likely.
  • Valuation PER 19.7X, Yield 4.4%
  • Conclusion I am always wary when market consensus is that a mortgage network is not cyclical.  We have slow housing transactions, buy to let under pressure and a move from 2 year to 5 year mortgages creating a slow down. But as long as the adviser number keep growing so do the earnings.  Perhaps even in a downturn they will pick up more advisers.  So it looks OK – just expensive for underlying 6% PBT growth.

25 July 2019

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Mortgage Advice Bureau – Trading Statement 

Share Price 604p

Mkt Cap £312m

Conflict Disclosure: No Holding

  • Update : Revenue for 6 months to June grew 5% driven by a 13% increase in the number of advisers. As previously reported housing transactions are taking longer to complete. Trading is in line with expectations. The acquisition of First Mortgage Direct will expand the number of advisers in H2.
  • Estimates EPS to Dec 19 is expected to be 29.1p and dividend 24.9p
  • Valuation PER 20.8, Yield 4%
  • Conclusion Sensing that Buy to Let, Brexit uncertainty and the move in the switching market from 2year to 5 year fixed rates would slow the market down coupled with the change in Dividend policy announced in June I put the scrooge head on to see if there could be a warning coming by taking a look at the sensitivities. I reckon as long as they can keep expanding the number of advisers they will be OK. Perhaps that’s why the acquisitions have been accelerating. It looks OK for now but hard to see a catalyst on the upside.

18 June 2019

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Mortgage Advice Bureau – Acquisition 

Share Price 582p

Mkt Cap £299m

Conflict disclosure: No holding

  • Acquisition MAB1 is acquiring 80% of First Mortgage Direct for £16.5m cash which is expected to be significantly earnings accretive. First Mortgage has 90 advisers and is based in Edinburgh with 14 shops. From arranging £2bn mortgages last year it achieved revenue of £10.2m and PBT of £1.5m.
  • Consideration Mab has obtained a revolving credit facility from Nat West for £12m which it intends to repay as quickly as possible aided by reducing dividend payout from 90% to 75%.
  • Estimates December 19 forecasts look for £17.7m PBT which is EPS of 28.3p and a 26.1p dividend.  If we add £1.5m to the PBT we may get EPS of 30.7p and a 75% payout would be a dividend of 23p. So it looks like a dividend cut in the region of 10%.
  • Valuation Pre acquisition PER 19.3X and yield of 4.7%.  Acquisition looks c 8% enhancing.
  • Conclusion This share has long been expensive but reliable and supported by the dividend.  I have recently found myself worrying that over the last two years as Buy to Let mortgages have declined the slack had been taken up by first time buyers and growth in the mortgage switching market but around 2 years ago more mortgages have been moving from 2 year fixed to 5 year fixed which could slow the switching market two years later. An acquisition could be what is needed to fill the gap.  It looks a little defensive and a dividend cut won’t be welcomed.

28 May 2019

Mortgage Advice Bureau – Volumes 

Share Price 597p

Mkt Cap £307m

Conflict disclosure – No holding

  • Mortgage approval numbers are due out today. Of course this doesn’t cover the transfer market which is about 38% of the total mortgage market where over the last 2 years there has been a huge switch from 2 year fixed loans to 5 year fixes. From what I can tell it would appear that there has been around a 20-30% switch in the volumes of new mortgages moving from 2 year to 5 year fixes over the last 2 years. Which of course will cause a slowing in the market as the 2 year renewals now take longer to renew. Coupled with the longer time it takes for property transactions to occur it may be there are yet further downgrades to come for Mortgage advice bureau.
  • Estimates Forecasts in the year to December 2019 are for 10% revenue growth which in the context of a 15% increase in appointed representatives may look reasonable. However, with a consensus of a 25.7p dividend and 28.3p of EPS any further downgrade could cause the market to worry about the dividend
  • Valuation PER 19.9X and yield 4.6%
  • Conclusion  There are a number of headwinds and over the next 6 months the pressure on forecasts may be on the downside. Its hard to get too negative in the context of 15% market share gains but this looks unlikely to improve over the next 6 months.

20 May 2019

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Mortgage Advice Bureau – AGM update 

Share Price 612p

Mkt Cap £313m

Disclosure No holding

  • Update AR numbers are up 5% year to date while the company cautions that the longer time taken for housing transactions to complete has impacted the timing of the banked revenue. However they say the majority of their AR’s have strong growth expectations for the current year.
  • Estimates The 10% expected revenue growth this year sounds like it could be a little aggressive. With a 95% dividend payout ratio this could cause concerns over the dividend. The accounting policy for revenue states that revenue is accounted for when it is guaranteed to be received so the banked revenue referred to is also likely to be accounting revenue.
  • Valuation PER 20X yield 4.5%
  • Conclusion This share is priced like an annuity. If there is uncertainty over the estimates it is certainly 20% too high.

19 March 2019

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Mortgage Advice Bureau – FY Results 

Share Price 575p

Mkt Cap £294m

  • Results Revenue up 13% to £123m, GP up 10% to £28.4m and PBT up 8% to £15.7m. EPS up 9% to 25.9p. DPS up 9% to 23.3p. Adviser numbers up 13% over the year and since the year end have increased a further 2% to 1,234. The outlook statement cautions that those appointed representatives involved in estate agency sector are pausing their growth so the number of appointed representatives may grow at a slower rate in 2019 before resuming growth in 2020.
  • Estimates Forecasts for 2019 assume 15% revenue growth. Looks like a downgrade today
  • Valuation PER 20 yield 4.6% on a 90% payout ratio
  • Conclusion The company has weathered the slow down in housing transaction as volumes were taken up by buy to let. As buy to let transaction slowed the end of QE boosted the transfer market. This is the first time that there seems to be nothing to take up the slack this year. Shares likely to fall to the level that the yield support will hold them at.

25 September 2018

Alpha FX – Trading Statement  

Share Price 555p

Mkt Cap £185m

·         Statement Trading in September month has been particularly strong. The board expects results to be ahead of expectations

·         Estimates 28% PBT growth is currently forecast to £17.8m. EPS 20% growth to 20.6p.

·         Valuation The shares trade at 26X current year earnings and yield 1.1% before upgrades which may make it perhaps 10% cheaper.

·         Conclusion This company is highly valued. In my view the only time it is justified to pay up for a company is when it is at an early stage and the operational leverage of high top line growth combines with high margins to ensure the company can grow into its valuation quickly. Alpha FX is one of these. Given the overseas expansion this company could show rapid growth.