Manx Financial Share Discussion Threads

[castleford tiger] 30/3/2024 09:51

Time is valued higher than MFX

Could anyone do a comparison please?

[smithie6] 30/3/2024 09:25

...looking at the text in the new accounts about acquisitions it looks probable that at least 1 acquisition will happen in 2024 imo.

The acquisition of 50.1% of PA Ltd has been a great success, which will motivate the bod to do more deals if any suitable ones are available.

And to fund lending by any acquired company, well, MFX deposited money went up by £150m (!) so it has the money to lend out, subject to not already being lent out on fixed duration loans.

One advantage for MFX is that all the other banks (NatWest, Lloyds, Barclays....) are much much bigger & hence they would not look at the small types of acquisitions that MFX would look at. The company TIME (& others) might be a competing buyer for some deals but they don't have a banking licence so are perhaps less attractive to a seller who has an incentive based on future performance.

[smithie6] 29/3/2024 22:35

If of use

The Edison write ups for MFX can be accessed via this page on the MFX website

[smithie6] 29/3/2024 21:53

Personally I would have liked to have seen more profit for 2023 (greedy so & so !)
....but MFX has paid high interest rates in order to really attract & drive up the amount of new deposits (which rose ~50%)....the high % rates have reduced the margin

But
The directors are not stupid & they have big amounts of cash invested in MFX & high growth in lending & profit has been achieved at recent acquisition PA Ltd.....
....so, I have to think that the directors have made the right move, even though temporarily the reduction in margin is not ideal.
If one reads the Edison analysis for the H1 results it gives some explanation of how a flattening off (after a rising trend) or falling interest rate increases MFX profits. So hopefully we will see that in 2024 & 2025.

And if the loan book keeps growing year after year, as it has, that is surely good for MFX.

[smithie6] 29/3/2024 21:28

Looking back ..poor EPS performance for H1 2023.
I hadn't realised that an Edison analysis note blames it on a loss from the wealth management/advice business on the IoM. Which we knew has had a rocky last few years. But in the recent AR the MFX dirs reckon it contributed cash to MFX in 2023 & is set to do better in 2024.

The Edison analysis report for H1 2023 is free & available via the Edison website.

In 2022 & 2023 Edison have published an analysis write up with tables of data for H1 results & again after the annual numbers are published. So, next week it is likely that there will be an analysis write up from Edison for the annual MFX results & tables of data comparing with previous years.

[smithie6] 29/3/2024 21:21

It does seem too low, with shareholder's assets of £36m now.

And rising £5-6m every year recently.
On 31st Dec 2023 (9 months time) the shareholder assets should be >£41m minimum, versus £27m mkt now. That's a big discount.

[tongostl] 29/3/2024 09:31

£27m mrkt cap is ridiculous. If the share price was to double from here (ie 50pish) it would still offer reasonable value given the likely growth projections.

I'm confident the market cap will be in excess of £100m in a couple years and I for one will not be selling. I will hold these untill I feel the company cannot grow any bigger, and that I suspect is a long way down the line.

[smithie6] 28/3/2024 21:52

Conister increased lending by 53% from £203m to £302m (UK & IoM, including to PA Ltd)
But it's PAT only increased from £1.8 to £2.2m.
Only +22% !!
(Data from the AR)

imo there is, or should be !, more profit to come from that area in 2024, since it has clearly lagged, imo.

Ratios. PAT/lending
2022 1.8/203 = 0.89%
2023 2.2/302= 0.73%

A fall in profitability whereas one would have expected it have increased due to operational gearing.

Normally due to operational gearing one expects a big increase in turnover with little increase in staff to increase the profit margin, not reduce it.
But it looks like MFX-Conister has provided highish interest rates to attract in the money. It's a fair amount of money from the smallish population of the IoM, unless some is coming in chunks from international finance bodies using the IoM tax haven.

To return to the margin of 2022 would be an increase from 0.73% to 0.89%, + 0.16%, = .16/.73
= 22%

£302m (2023) with 2022 margin rate of 0.89% would give a PAT for Conister of £2.7m. an increase of £1/2m. A material amount-increase on the reported group PAT of £5.3m.
So, hopefully we will see a higher PAT for Conister for 2024.

---
And if Conister lending grows to say £380m, a smaller % growth than in 2023, to be cautious, & achieved the 2022 margin, 0.89% then the PAT for Conister would be
£380m X 0.89% = £3.4m PAT
An increase of +£1.2m from 2023.

Shouldn't count ones chickens too early on, but it is useful to do some sums, look at the ratios, look at the trends. The growth trend in lending at MFX has been going on for years, the data is in the past accounts. No reason to think it will stop now after 2023.

=====
A) PA. If 4 months average loan period.
funding of loans made of ~£140m by PA Ltd, if the average loan duration was 4 months (perhaps it's longer) that infers an average loan to PA Ltd of 1/3rd of the total of £140m =~£47m. Although the loan was previously ~£23-£26 million at the time of acquisition, so the relative change wrt 2022 is smaller, at ~£20-23m.

B) if 5 months average loan period
funding of loans made of ~£140m by PA Ltd, if the average loan duration was 5 months (perhaps it's longer) that infers an average loan to PA Ltd of 5/12 of the total of £140m =~£58m. Although the loan was previously ~£23-£26 million at the time of acquisition, so the relative change wrt 2022 is smaller,
at ~£34m.

[smithie6] 28/3/2024 21:21

And..more.. ;-)

PA Ltd made £1.8m PAT for '23.
25% UK corporate tax I think now.
So, a PBT of £2.4m. (MFX owns 50.1% of PA Ltd, with an option to buy the other half)

Overall loans made by PA Ltd in '23, ~£140m, see recent previous posts.
So, PBT as a % margin is 2.4/140= 1.7%.
Only this small % & a big amount of money produces a material sum as profit.
Note that this is after the costs of borrowing the money from MFX & paying MFX for some support (MFX administer/ed a material % of the loans).

(I think software , or more software, will be introduced to automate more of the process)

[smithie6] 28/3/2024 19:54

Digging thru the accounts a bit more.

----
I hadn't realised/noticed that the volume of loans in '23 was £353m,
up 52% !!!!!
from 2022 (£231m)

An increase of £122m !!

:-0

Digging a bit more, the lending in H1 '23 was £68m.
(I'm rounding to nearest £1m)
So, an estimate for PA loans for 2023 is >£136m, 2x H1, let us say £140m.
Let us estimate £25m (100%) for 3 months while 50.1% owned by MFX at the end of 2022.
That gives an increase for 2023 wrt 2022 for PA lending while 50.1% owned by MFX as 140-25= £115m.

Hang in there reader, I will make a point soon from all these numbers !! :-)

So, MFX loans made in '23 went up £122m.
PA ltd contributed an increase in loans of ~£115m.

You see the point ?
That the increase in loans by MFX in '23 was virtually all due to PA Ltd !!

, if my calculations are correct, which are mostly/generally based on real numbers given in the '23 MFX accounts & the H1 results presentation, so my calculations should be about right.

=====
If PA ltd can grow loans made by say 20% in 2024 & if £140m is a an accurate estimate for 2023 (~2 X H1, so it should be correct or a partial underestimate).

By
20%....140+ 28m = £168m !
30%.....140+ 42m = £182m !

While noting that the increase in H1 2023 wrt H1 2022 was higher, at ....66% !!
But after the initial increase after having MFX providing more funding I guess that the growth will not be as high. Pencilling in +66% again would be over optimistic imo !

'If' PA were to achieve £182m of loans in 2024 it would be 79% (182/231) of the total MFX lending in 2022 !!!

:-0

Impressive growth.

[castleford tiger] 28/3/2024 17:42

Think a non exc brought PAT as a contact ages ago

[smithie6] 28/3/2024 16:59

...looking from a distance it might be that the marked improvement in the profit at MFX over the last 3-4 years lines up with the CEO changing, as well as the company achieving a critical mass/size.
...if the 'new' CEO has played a part then we can't moan about him getting some share options (RSUs) exercising in the future at 0p, subject to achieving performance targets, ....he surely played a key part in the PA Ltd acquisition deal which so far is going very well & contributing nicely to MFX.
...and MFX has rapidly enlarged its lending in the UK (mainly due to PA Ltd I assume) & a result/consequence of that is the move/outlay to obtain the UK banking licence....& that should assist future growth
....all going very well these last few years....& one assumes that the new CEO has been an important part of that.
... definitely not been afraid to give it a go anyway !

[smithie6] 28/3/2024 15:56

History of attributable MFX PAT.

Basic PAT
2016 basic attributable PAT. £1.3m
2018 basic attributable PAT. £2.5m
2019 basic attributable PAT. £2.7m
2020 basic attributable PAT. £2.0m
2021 basic attributable PAT. £2.8m (+ 40% !)
2022 basic attributable PAT. £4.3m (+ 54% !)
2023 basic attributable PAT. £5.3m (+ 23% !)

The PAT has almost doubled in just 2 years !!!

The growth in the PAT
2020 to 2023 . £2.0m to £5.3m. + 115% !
2021 to 2023 £2.8m to £5.3m. + 89% !

2021 to 2023. Almost doubled in just 2 years !

And that is with very low profit % of 0.8% PAT from £302million of loans made in 2023 by Conister to borrowers, subsidiaries, associates & agents/brokers. Which the company says it expects to increase.

Sequential annual growth in attributable basic PAT in the last 3 years ( '21, '22, '23) of 40%, 54%, 23% !.
Pretty stellar really !

And despite this very big % growth in profits the p/e is still low, although yes the share price has risen a lot.

The market is not aware imo of these growth numbers. The cap. value is <£30 & the number of existing shareholders is surely very small. And in the past 3 years the company has been mentioned in the financial media very few times, so perhaps one can't blame PIs for never having heard of MFX.

[smithie6] 28/3/2024 15:17

Further note about low % margin.

Text in the H1 report makes it very clear that the company is fully aware of this (no surprise there !) & that it was in part done intentionally to attract deposits, as I suggested.
And that the company plans/expects the margin to increase back to a more normal % over time, especially if/as interest rates reduce (which are predicted by everyone & the USA's FED) in 2024, 2-3 interest rate cuts are forecast in the USA, & the UK & EU are expected to do similar rate cuts imo.

"This margin erosion is clear evidence of Conister Bank Limited passing on interest rate increases to the Island’s long-suffering savers and indeed it has proved very successful in attracting a significant number of new depositors. It is worth noting that this margin erosion has been partially offset by our increasing yields, which once the interest rates start decreasing, will help to restore our net interest margin to a more normalised position. "

"Increasing yields" ...if anyone understands that, feel free to post !
...very bad use of words imo...
..reducing the nett margin % increases the yield ??, uh, really ??!

(What it meant to say, imo, was that the loan to deposit ratio had increased.
For me the use of the word "yield" is simply, well, wrong)

[smithie6] 28/3/2024 14:05

Stewy
...be interesting to dig in to the accounts & see what % of money left with Conister gets <1%, what is deposited for 1 year, what % for 3 years etc.
(For 1 year loans, every month 1/12 of them end & if they will get a new % rate if deposited again)

But finding the enthusiasm to do that today is difficult!

[smithie6] 28/3/2024 13:54

Btw
I'm disappointed with Jim Mellon.
He's a largely non-involved exec chairman, charging a lowish fee (£50-60k) & he brings a lot of financial & markets experience to the table. (In terms of predicting economic movement & stock market movement & predicting things like bond/gilt market movements in advance, he is very clued up, & experienced. And he has a big investment here so he surely keeps a close on minimising/controlling the risks/exposure that the group takes. As the biggest shareholder, with his friend's stake & options, it would be a brave (or foolish) person in the bod. who fought against JMs preferred decision, since you might be out soon afterwards !)

But

Imo, to receive numerous complaints from shareholders (including holders of 2-3% I think) about confusing reporting in the last annual accounts & the 2023 H1 accounts

To then partially repeat the same mistake again in these accounts. Is pretty stupid imo.
The front page intro sentence JM writes that the PBT =£7.0m, +35% wrt 2022.


while inside the report ...on the next page !! it says the PAT is ~£5.3 million for MFX shareholders. Up from £4.3m for 2022. =+23%, not +35% !

And who wants to see PBT on the fron page summary ?! No one imo !
Investors care about PAT, the amount for shareholders after the taxman gets his cut. And PAT is used for the important EPS calculation, not PBT.
Why JM uses PBT in his front page summary, crazy imo.

If I was a potential new investor that would put me off the shares. If I was looking at investing say £2k in 1 of 3 shares, well, if share 1 had some confusion I would just discard it & decide between shares 2 & 3.

------
JM
There is a saying 'you can lead a horse to water, but you cant force it to drink'
Or perhaps, in this case, 'sometimes the horse even refuses to be lead to the water' !

[stewy_18] 28/3/2024 13:48

Oh, the dark arts Smithie! One wonders if they can increase the margins or if the interest rates are locked in on the loans.

[smithie6] 28/3/2024 13:23

Conister & it's low nett % margin. 0.8% on loans. (£2.2m PAT on £302m of loans made in 2023, IoM & UK, which includes via PA Ltd imo)

Here is an idea for you...
....the CEO has a chunk of options, some exercise at 0p, perhaps to meet the performance targets the plan is to build up the size of the loan book, helped by making very little profit on it !!, & then, bam, increase the margin at the right time to meet the perf. reqts to meet the perf. targets to get all of the share options/RSUs at 0p exercise price.
It's one idea.

[smithie6] 28/3/2024 12:04

Quiet day for MFX shares
Only £500 traded so far today up to midday.

----
By 1pm, 23k shares, picked up a bit.

[smithie6] 28/3/2024 12:00

the AR for 2023 says

"In the UK, growth has been driven by our Structured Finance products with lending increasing by £93.1 million to £246.2 million (2022: £153.1 million). The structuring of these facilities continues to minimise the risk of default and is proving a successful mechanism for growth in this difficult environment."

I think it means that these loans have asset backing.

----
..risks of bad debts...
..well, very low bad debt % in 2023, & a lower % than in 2022.
So, that all looks good imo.

[clocktower] 28/3/2024 11:57

How risky are those loans, and is it fear of losses from them that is holding the share price back?

[smithie6] 28/3/2024 11:45

Conister IoM provides the funding to PA, BLX, PIML, BBSL etc etc...not Conister UK ltd

-----

Conister UK ltd might have started lending, since it has a licence but since it won't start it's on-line deposit taking until H2 2024 & is setting itself up imo I assume it hasn't taken any deposits yet ...
....although it could obtain funds from Conister IoM to lend out, in advance if taking deposits, if it wanted.

(Imo logical first deposits at Conister UK would be from MFX subsidiaries since they each hold some cash, & as controlled or owned subsidiaries MFX can tell them their cash needs to be deposited at Conister UK ! ;-)
....although Conister UK imo perhaps needs to provide banking services for that, & perhaps it's not at that stage yet)

[stewy_18] 28/3/2024 11:42

Have they really already loaned out £150 million from the UK branch of Conister?

[stewy_18] 28/3/2024 11:33

OK CT, but why are other banks %age margin in a lot higher that Conister? I remember this being asked at the last Mello and they didn't really give a meaningful answer.