|Morses Club PLC Q&A with Hardman & Co Analyst Mark Thomas (LON:MCL)
|When are the results ?|
|Welcome aboard GHF. SCSW had this to say back in November:
Morses Club - Tailormade for consumer downturn
120.5p Epic code: MCL
(Sharewatch) Bears are having a field day in consumer shares so if we are heading to a period of choppy economic times, Morses Club (MCL; 120.5p), which provides unsecured short term loans ranging from £100 to £1,000 through Morses agents who visit a customer’s home and collect weekly or monthly repayments, looks tailormade. Although founded in the late 1800s, Morses in its current form emerged in 2009 when RCapital acquired the home collected credit (HCC) business of London Scottish Bank and merged it with Shopacheck, creating the second largest home collected credit business. The shares joined AIM following a placing at 108p in May, which left RCapital with 51%.
Most of us are fortunate enough to have access to mainstream banks but the reluctance by UK banks to lend to those with black marks on their credit file leaves 12m people who are “cash and credit constrained” and 3m turn to a HCC service regularly. Morses has a personalised service, including face-to-face interviews and takes each case on its merits, based on levels of income, assets and absence of county court judgements.
Morses Club has a fixed interest rate of 50% on a 20 week loan, 65% on a 33 week loan and 82% on a 52 week loan. It might look eyewatering but HCC became an FCA regulated space in 2014 and although payday lenders such as Wonga had price caps imposed, HCC was unaffected because the regulator decided that face-to-face lending allows a better assessment of lending versus remote loans.
There are currently 1,800 self-employed collection agents, undertaking collections across 207,000 households. Larger rival Provident Financial has 900,000 customers but Morses continues to add new agents from other HCC firms and pays them more (c.10% of the money they collect). New agents need to build a loan book from scratch, which penalises short run earnings but customers then use their services repeatedly.
To support growth, Morses has cut the duration and size of its loans, which is increasing the yield on the book. The average loan is £553 and 50% of loans have a term of 33 weeks, up from 38% a year ago. Second, Morses is launching its online offer shortly, which could deliver spectacular returns as there is a trend for customers to seek credit online, particularly amongst a more affluent and younger demographic. Third, increased regulation is weeding out weak players and Morse has completed six deals and added £7m of receivables this year. Despite that it has virtually no leverage.
Of course, HCC isn’t risk free. In H1, bad debts as a proportion of revenue was 22.5% but it still made a pretax return on receivables of 30.4%. The bad debt level was higher than the previous year when Morses had acquired fewer new customers (with the highest risk) and Panmure reckons underlying growth in profits is 23%. The eps forecast is 10.7p this year and 11.4p next. A director just bought 200,000 shares at 129.6p. Follow his lead. Buy.|
|Excellent post as ever GHF, let's hope it's catch up time....|
|I've also had a nibble here & see an investment in lenders such as Morses (MCL) & Non Standard Finance (NSF) as counter-cyclical investments, that should do well irrespective of the underlying economic conditions.
Good thread here with plenty of links to interviews, presentations and the comprehensive Hardman research note.
Of course, early stage collection businesses such as these have to contend with increasing regulation but neither are classified as providing high cost short term credit (such as Wonga & other pay day lenders). Page 26 of the Hardman note provides good commentary surrounding this.
NSF is in the buy/build stage, offering greater risk but forecasted stronger earnings growth, while MCL offers steadier growth and prospect of a 6% dividend yield this year.
Numis had this to say in October 2016 (share price same as today): -
"...first half pre-tax profit exactly in line with our forecast of £8.6m. The income margin expanded to 83.4% from 80.0% as the loan duration shortened and this drove a corresponding increase in the impairment charge which was £10.6m against our forecast of £10.3m.
Operating costs continue to be impacted by investment spend but nevertheless there was an improvement in the overall group Cost:Income ratio to 58.1% from 60.9% with underlying costs being slightly lower than forecast.
The ROE (25.4%) remains very strong given the lack of leverage and the group's RoA is a sector leading at 19.5% and is well up on the 18.5% reported last year. The group is delivering on all of its key strategic objectives with strong territory builds of 114 in the period (the full P&L benefit of this growth should be reflected in H2) compared to the 68 achieved in the first half of last year.
This growth increased agent commissions but we view this as a temporary burden while the new agents establish themselves. Card issuance is running ahead of plan having already exceeded their full year target of 5,000 and is now likely to be c.10,000 at the end of the year.
Acquisitions were slightly weaker than forecast in H1 at £3.3m against our estimate of £3.5m but they have more than made up for this with £3.2m so far in H2 (timing is everything) and a further £1.6m of pipeline.
The dividend was slightly better than our forecast of 2.0p at 2.1p with the dividend remaining a core part of the group's strategy of returning value to shareholders.
We are modestly revising up our underlying pre-tax profit forecasts for next year to £19.1m from £19.0m and to £21.1m from 21.0m for the year after. We continue to believe Morse Club offers good value trading at a PE of 10.3x and a growing dividend yield of 6.0% based on next years forecasts".
Both MCL & NSF have missed out in the market rally & look decent value IMHO.
|Hardman Research: Home Collect in the 21(st) Century
Bringing Home Collect into the 21st Century: Having completed a major integration, management is now focussing on carefully controlled growth. Technology is driving efficiency improvements, aiding credit management (impairments are at the lower end of expectations) and improving compliance and controls. MCL is the number 2 in UK home-collect credit (HCC) market, and is around twice as large as the number 3. It is attracting and acquiring performing agents and portfolios of loans. Revenue margins have been increased and MCL is introducing new products where it has a competitive advantage from existing operations, or risk management expertise. We see 28% valuation upside.
Please click here for the full report:
|Morses Club PLC
Acquisition of Shelby Finance Ltd.
Morses Club PLC ("Morses Club" or "the Company"), the UK's second largest home collected credit ("HCC") lender, is pleased to announce the acquisition of Shelby Finance Ltd. ("Shelby Finance"), a provider of online instalment loans.
Shelby Finance is fully authorised by the FCA to provide online instalment loans and will operate as a subsidiary of Morses Club PLC.
This acquisition is an important strategic development for Morses Club as it will accelerate the launch of a new, branded online instalment loan product. The Company has seen an increasing number of visitors to its website who are looking for alternatives to its core HCC offering. The introduction of an online instalment loan product is the next step in the Company's strategy of developing digital products to complement its HCC offering and target a wider range of customers across the UK non-standard credit market.
Paul Smith, Chief Executive Officer of Morses Club, commented:
"The acquisition of Shelby Finance is another example of the progress we continue to make with our strategic plan of using technology to offer customers a broader range of products, supplementing our core home collected credit offering and ensuring customers can access credit with the flexibility they require.
"Outside the HCC sector, there are c. 9 million additional customers who access the wider non-standard credit market. The introduction of our new branded online instalment loan product will enable us to offer these customers access to credit in increasingly flexible ways with all the benefits of Morses Club's customer service ethos.
"We anticipate that the new online instalment loan product will be launched in the first half of our trading year and look forward to updating the market once the full launch plan has been finalised."|
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|Yes bb2, the presentation is excellent and so is the CEO interview.
Doorstep lender Morses Club is to launch a new online brand to tap into the growing demand for web loans:
Paul Smith, CEO of Morses Club, said: "It won't be a payday loan. It will be an online installment loan. It's for tech savvy customers. We get 110,000 hits to the web and of these, 75 per cent are looking for an online loan and 82 per cent are hits from a mobile phone." (YorkshirePost)
Forgot to add in my post that a NED has bought 400,000 shares recently.|
|Good to see u here Aishah. Article makes good reading.|
|I've added here recently. Detailed CEO interview from Oct:
Analyst presentation from Interims:
Rcapital might continue to hold imo as the online offering may be transformative:
“I was recruited as Deputy CEO in October 2014, at the end of the operational integration of Morses Club and Shopacheck, and was privileged to enjoy the most thorough induction into a business that I’ve ever witnessed. By the time I was appointed to the top job a few months later, I’d had a proper ‘Rcapital grounding’, to ensure I that had all of the tools to succeed. Within six months, they decided to float; and we were listed a little over a year after I became CEO. They have been hugely supportive, highly commercial and great fun to work with. Phenomenal.”
Paul Smith, CEO, Morses Club PLC
As SCSW said back in November:
"To support growth, Morses has cut the duration and size of its loans, which is increasing the yield on the book. The average loan is £553 and 50% of loans have a term of 33 weeks, up from 38% a year ago. Second, Morses is launching its online offer shortly, which could deliver spectacular returns as there is a trend for customers to seek credit online, particularly amongst a more affluent and younger demographic. Third, increased regulation is weeding out weak players and Morse has completed six deals and added £7m of receivables this year. Despite that it has virtually no leverage."
A 2017 SCSW NAP?
|Obviously not put off by his October foray.|
|A respectable buy by the NED.|
|well , although i like the business, this puts me off.
when a major shareholder is actively running the company, that's great.
but seen too many cases of owners floating a company and then selling off their stakes as quickly as they can which is detrimental to the small shareholder.
i am not saying that's the case here but the short 6 month lock-in somewhat spoils for me what is otherwise a potentially interesting investment opportunity.
ALL IMO. DYOR.
|I think because he was the selling shareholder he probably asked for the short lock in. Could be a buyer already lined up maybe an institution but like you say we don't want a scenario like the one that's playing out at PIL and BILN.|
|Am new to this share via SCSW and confess don't know it's history.
Would the NED who bought quite a shedload in October [at a higher price than SCSW subscribers] be aware of future ex lock in share sales depressing the price, just a thought. Might he have waited a bit.|
|Thanks but that's it!
Not the well incentivised Company Management but the 51% shareholder.
As clearly specified in the last para, it clearly states that the 51% shareholder - Mr. Constable- only has a six months lock-in which expires in a couple of weeks' time.
Is there anything to support your assertion that you do not expect him to dump shares? On what basis can you say that?
It worries me that the Lock-In is so very short. After that he is effectively free to sell the shares, initially through Panmure/Numis and then six months further down the line however he choses.
That is a real overhang and I don't like a major sword of Damacles after a mere six months.
I like the business but the imminenet expiry of the 51% lock-in is a major negative for me.
ALL IMO. DYOR.
|Hi QP good to see you also like these. I don't see the major holder as a problem as I'd expect them to hold the shares a lot longer but in any event not to dump them in the open market. Could also be diluted with an acquisition
14.3. Lock-in Deeds Directors
Stephen Karle, Paul Smith and Andy Thomson, Numis, Panmure Gordon and the Company have entered into a deed whereby such Directors in respect of themselves and each of their connected persons, have undertaken to Numis and Panmure Gordon, not to dispose of their respective interests in the share capital of the Company during the period commencing on Admission and ending 12 months after the date of Admission, and in order to ensure an orderly market in the Ordinary Shares they have further undertaken, in respect of themselves and each of their connected persons that for a further period of twelve months thereafter they will not (subject to certain limited exceptions) deal or otherwise dispose of any such interests other than through Numis and Panmure Gordon.
The Selling Shareholder, Jamie Constable, FCAP Four Limited, Numis and the Company have entered into a deed whereby the Selling Shareholder, Jamie Constable and FCAP Four Limited have in respect of themselves and each of their connected persons, have undertaken to Numis and Panmure Gordon, not to dispose of their respective interests in the share capital of the Company (subject to certain limited exceptions) during the period commencing on Admission and ending six months after the date of Admission, and in order to ensure an orderly market in the Ordinary Shares they have further undertaken in respect of themselves and each of their connected persons that for a further period of six months thereafter they will comply with certain restrictions in relation to any disposal of any such interests other than through Numis and Panmure Gor|
|I like this .
My BIG concern is the following.
The major shareholder owns a whopping 51%. He is arms' length and not involved in the running of the business.
There is a lock-in period of just SIX months from April date of admission to AIM.
That's a really short lock-in period. Sometimes there are 2 or 3 or even 5 year lock-in periods.
If the major shareholder starts selling, that will impact significantly.
Any views welcomed.
ALL IMO. DYOR.
|Me in too this morning - looks a low risk buy in current climate|
|30k buy at 124|
|Sharewatch cracking buy rec|
|Tipped in IC, should see some buying and a rise in share price today/Monday|
|Good to see Panmure retain their buy stance with an increased target price of 150. Ex divi 2.1p today.|