Manx Financial Share Discussion Threads

[davidosh] 31/3/2024 20:16

Smithie6 said....

MFX is going to present at a Mello event I think.

Tiger, is there a date for that ?

A. They are presenting on Monday 15th April

[smithie6] 31/3/2024 10:15

MFX loan book ( £363m) is about double the size of that of TIME (£189m). (While MFX only 'owns' 50.1% of the loan book of PA Ltd; but that doesn't change the total by that much).

While MFX makes just 25% more PAT than TIME from this lending.

So, clearly TIME makes a higher PAT margin from its loan book than MFX does. In part this is surely due to MFX having much higher staff & other costs (£19m)
than TIME (£12m ?) since it has to staff it's bank branches in the IoM & back office staff for that. And MFX has reduced its margins in 2023 in order to attract lots of new deposits, +~50%, + ~£150m !
MFX shareholders will be hoping that the margin can now increase. With that +£150m the loan book is now very big wrt the cap. value & only a small increase in the % margin would/should notably increase the PAT & EPS.

[smithie6] 31/3/2024 10:01

...well, I'll be very happy if ST were to take an interest in MFX. ;-)

He has a lot of readers. He normally likes stuff where he thinks it is cheap & underpriced, especially if combined with growth.
ST has some current tips which are tiny/small financial companies so MFX is big enough for ST to consider it.

----
Investor's Champion has TIME in their Bonker's Bargain section. And MFX is notably cheaper than TIME, so, always a chance that they might add MFX to one of their portfolios or give it a positive write up, one day. Fingers crossed. Clearly they are willing to consider to include small lenders in their Bonker's Bargain section since they put TIME in there.

(I bought TIME at 28p, later I took profits & used the money to buy more MFX shares, which, in hindsight, has worked out very well. ;-) )

[eigthwonder] 31/3/2024 09:50

I think you overestimate the curiosity of the IC writers (apart from ST)

[smithie6] 31/3/2024 09:30

Btw
Investors' Chronicle & Investors' Champion both like TIME, so, now that MFX has issued it's first annual results including 1 full year of owning 50.1% of PA ltd (which doubled its profit & loans up by ~60%)....the writers at Inv.Chron. & Inv. Ch. will surely be running an eye once the MFX AR.
(The pdf for the results are now available btw on the group's website).

TIME has the benefit of a broker's forecast (Cavendish) whereas I don't think any forecasts exist for MFX.

[smithie6] 30/3/2024 17:24

At TIME for £36.5m you get total comprehensive PAT of £4.3m (2 X H1)
So, for £1 of cap. value you get £0.12 of PAT.
12% return

While at MFX
For £28m you get total comprehensive PAT of £5.6m.
For £1 of cap. value you get £0.2 of PAT.
20% return.

=====

It is only one valuing method but for this one clearly gets a lot more return at MFX than at TIME, while of course only a part of this return is paid out to shareholders each year.

[smithie6] 30/3/2024 15:27

TIME vs MFX. !

(If anyone wants to copy & paste ....& then fill in the bits I haven't done....then feel free)

-----

(Have used mid prices. & undiluted total comprehensive EPS. )

Current cap. value, as % of shareholders' assets at 31 Dec 2023

TIME 36.5m /63.8m *3= 57%
TIME. *5. (Valuing goodwill at 1/2) = 36.5/___= ____
MFX. 28m/35m= 80%

*3. Includes a very big amount of goodwill. One would need to look at it to decide if it's quantity is valid or if it should really be lower.

======

current cap. value, as % of shareholders' assets expected at 31 Dec 2024

TIME. *3.
MFX. = 28/41 = 68%

*3. Includes a very big amount of goodwill.

---------

cap. value as % of nett tang. assets.
TIME 36.5 /____m =
MFX. 28/__=


==========
p/e

TIME 39.5p/4.7 *2= 8.4
MFX. 24p/4.9p (*1)= 4.9

*1, this includes a gain in Govt bonds which has not yet been taken, but it exists.

*2. 2 X H1 results, published January '24.

======

p/e diluted, after conversion of any CLNs

TIME 39.5p/4.7 *2= 8.4
MFX. 24p/4.2p (*1 & *4)= 5.7

(*4 This assumes that purchase of the 49.9% of PA. Ltd happens at the same moment of the dilution, adding the PAT from 49.9% of PA Ltd.
~154 m shares after dilution due to the CLNs.
PAT comprehensive + 2nd half of PA Ltd =5.6+ 0.9= 6.5.

= 6.5/154= 4.2p)

=====
Growth in basic EPS, PAT. For '22 to '23 results

TIME. +35%. (Ref. H1 results)
MFX. 3.8p to 4.6p, 0.8/3.8= +21%

============

Main Conclusions

1) the p/e of MFX looks too low wrt the p/e of TIME.

2)

[smithie6] 30/3/2024 12:40

((btw
For anyone analysing the numbers.
The change in turnover-revenue at PA Ltd is imo not in fact a change from £10.1m to £10.8m as the accounts say.
Why-how ?
Because the amount of loans made went up 50-60% (ref. H1 2023 presentation) so a revenue increase of just £10.1m to £10.8m wouldn't make sense. And because PA Ltd off loads a block of its loans to MFX to administer, and as a result does not include the resulting revenue from those loans in its accounts).

[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)