Manx Financial Share Discussion Threads

[smithie6] 12/4/2024 15:30

CT
If of interest I have just updated my post about labour costs.

I make the increase in labour costs, apart from PA Ltd + a staff rise for inflation, charged to P & L, as ~£500k,

If the main exec for Conister UK gets £250k/year, perhaps a £100k pay rise from £150k, & expenses that accounts for a solid part of the £500k increase.

My conclusion is that the increase in annual costs (charged to P&L), so far, due to the UK licence is not so big as was perhaps thought.
(There are other costs, which are capitalised, as given in the AR)

-----
A major part of the increase in labour costs was due to adding the 32 staff of PA Ltd ...for 12 months versus ~3 months in the prior year. I estimated that change as ~£1.2m
But !
It was not solely a cost....
...the extra labour cost from PA Ltd added ~ £1.7-0.3m = £1.4m of extra overall profit to MFX from 100% of PA Ltd "after" deducting all costs including labour.

So, imo the overall increase in labour costs is "not" the cause of the notable reduction in underlying profits at MFX.

The increase in comission costs of £4m looks like a much bigger contributor to the underlying reduction in the MFX profit.

[smithie6] 12/4/2024 15:07

(perhaps I correct myself

While NatWest profit was very good, imo, (& the share price has risen from 180p to 280p !!, as the Nigel Farage saga & chairwoman negligence faded in to the rear view mirror)

The company's forecast for '24 does say this
"Management has guided for a c 12% RoTE in FY24 with conservative interest rate assumptions and expects margins to bottom in H124 and improve in H2 and beyond"

So, it looks like margins have also been under pressure at NatWest, not just at MFX, as I had thought.
However I think that the nett interest margin at NatWest has stayed almost unchanged, despite apparently being 'under pressure' & as a result the share price has gone from 180p to 280p.

Whereas at MFX the underlying profit % from normal lending has notably reduced. imo because the co. has offerred unusually high % interest in order to attract a rush in deposits, +~50%.

Can MFX in 2024 get this money to produce an increase in underlying profit ?
In 2023 the underlying profit fell, despite the massive increase in the size of the loan book !

[castleford tiger] 12/4/2024 14:41

@daviddosh could you post the web link for those on here please

[castleford tiger] 12/4/2024 14:41

Join us next week for MelloMonday

5pm Keynote Speaker
5:20pm Company presentation by European Green Transition
5:50pm Company presentation by Zinc Media
6:20pm Company presentation by Manx Financial Group
6:50pm BASH Panel with Damian Cannon, Kevin Taylor and Leon Boros




MelloMonday Zoom Webinar Link, Monday 15th April 2024, 5pm

[castleford tiger] 12/4/2024 14:39

a buyer...........wow

[smithie6] 12/4/2024 13:56

Post in the process of being written
======

Are we clever , & motivated, enough to compare MFX performance ratios with those for other banks (which means bigger banks since MFX is alone I think in being so tiny).
(Data has been taken from the financials pages on advfn, in order to save time. This has the risk of not being correct data).

NWG
Lloyds
MFX

- (attributable or total ?) PAT as % of revenue
1) NWG. 4.6/14.8= 31% (need to check the data used, since 31% looks too high)
2) Lloyds
3) MFX . Incl. 100% of PA ltd (because the revenue number is for 100% of PA ltd)
= 6.1/45.3 13.3%
Total-gross minus the one off due to capital gain on treasuries of £1.9m pbt, say £1.7m pat (IoM) =4.4/43.6= 10.1%



- costs as % of revenue



3) MFX
(The accounts are 'poor', there is no summation give for costs such as labour costs & other costs)
= 24? /45.3= 53%
(The chairman gives a different % but since imo any text from the chairman can not be trusted I will ignore his number-calculation. eg. the number he gives for the PAT of PA ltd is £0.4m higher than what the auditted accounts give !! FFS !!)

- nett interest margin
(= The difference between income from financial assets (loans etc) minus interest (& related costs) cost of those assets (money paid out to depositors etc)
1) at NatWest this is given as ~2.9%, if it is for the same ratio.

3) MFX
Income from loans= £45.4m +1.5 +4.0 (commissions received)= £50.9m
Interest paid out to depositors= £14.5 + £7.3 (commissions paid out)= £21.8m
Difference between these= £29.1m
Amount of deposits = £390m
Result = £29.1/£390m= 7.5%
But final margin was £6.1m /£390m= 1.6%. a very low % !!
This is PAT including 100% of PA Ltd, divided by the amount of deposits.
If remove the capital gain on treasuries (£1.9pbt, £1.7m pat) due to being a one off, then £6.1m reduces to £4.4m.
The resulting margin for that = £4.4m/£390m = 1.1% !!
Terribly low !!
Considering the risks of bad debts when lending out a big % of the deposited amount of £390m (~£350m was lent out) and other risks due to doing business then a nett PAT margin of 1.1% of the funds deposited is just unacceptably too low imo.
(My guess is that other banks would not take on or do any lending that produced a net PAT margin of just 1.1% of the funds deposited).

What do other people think ?

======

And if the ratios for MFX are not as good as at the other banks, can MFX take any action to reduce the difference?

[smithie6] 12/4/2024 12:00

Ah, it's on line.
I can try.
What time is kick off ?

[castleford tiger] 12/4/2024 11:23

Mello is on line why are you not participating?

[smithie6] 12/4/2024 11:04

Questions for the Mello presentation

If someone is going perhaps they could consider to ask these questions.

1) Does the company reply to shareholders' e-mailled questions ?

(I say it doesn't!)

2) Can the company justify the 21% increase in pay for the bod when the underlying profit is down versus 2022 ?

3) Does the company agree that the data & comparison with 2022 at the front of the 2023 AR is actually false data for the listed company LSE:MFX & what it owns (50.1% of PA Ltd & not 100%) ?

4) Does the company accept that the PAT for 100% of PA Ltd stated by the chairman on page 8 of the AR of £2.1m is not in fact true ?
(Note 32 on page 90 of the accounts state that the PAT of PA Ltd is £1.7m, not £2.1m)

And hence that the accounts do not give a true & fair report of the financial situation of the company as required by the Company Act 2006 ?

5) The amount paid in commissions has increased by £4m to £7m.
This is a massive amount wrt the PBT of the company.
The underlying profit has fallen versus 2022.
The loan book has increased by about 50%, a massive increase.
Has the company taken on a lot of new lending at loss making rates (including the £7m in commissions & the required increase in staff costs due to the high inflation) which has caused a fall in the underlying profit ?
Would the company have done better to have grown its loan book by a smaller amount but at % rates that allowed a profit to be made ?
Does the company think it can increase its % margin in 2024 or make a massive reduction in the £7m paid for commissions in order to recuperate the underlying profitability ?

6) The renumeration of the non-exec. director Gregory Bailey was doubled in 2023 to ~£59k.
Yet he only participated in 5/8 board meetings.
His background is not in banking & appears to only hold a board seat because he owns 15% of the company & is part of the concert party with the chairman JM.
What are the reasons for his renumeration being doubled ?

7) The chairman has a number of related parties on the bod (such as Denham Eke (he is an employee at JM owned & controlled companies) & Gregory Bailey (part of the JM concert party).
One could argue that they are yes men to give the chairman more power in bod meetings.
Does that break the guidelines for good governance?

(Pals & mates or employees are clearly not very good for doing a supervisory function. If Denham Eke went against JM then he risks losing his directors role at a number of JM controlled companies & hence most/all of his salary income !)

8) Banking costs
We're £0.9m in 2023.
Money going out of MFX.
MFX has 2 banking licences.
Can MFX do this banking work in-house in 2024 & reduce the amount spent on the use of external banking services?

9) The 2023 H1 results had this text from the chairman
"our foreign exchange advisory business thrives on these turbulent market conditions,.."

In 2023 , in reality the profit from FX advisory business halved to £0.7m.
A material loss of profit for the MFX group.

Does the chairman accept that he intentionally lied in the H1 accounts ?

10) The chairman of all of sub-committees is a non-exec that was appointed in 2007. And now 73 years old. So, he has been on the bod for
~17 years !!

Surely this blows a big hole in the good guidance recommendations, combined with the 2 related parties that the chairman has on the bod. I think the recommendation is that non-exec serve a maximum of, is it, 7 years, not 17 years. 17 years seems like a lifetime.
Is it surely not time for renovation in this role ?

11) The AR says that the increase in interest rates in the last 2 years has caused the margin at MFX to reduce.
At high street banks they have maintained their margin & "all" major banks have "increased" their profits & they forecast higher profits in 2024.
The same is also true imo for virtually every bank in the EU. They are all doing better !
Yet, at MFX the chairman writes 'oh, it is all so challenging '.
(However, sadly, we know we cannot trust what he writes).

Why is the underlying profit performance at MFX not up, as has happened at all the other banks ?!

(Underlying PAT has reduced, if remove the one off capital gain due to treasuries. And even worse if also remove the extra £0.85m due to owning 1/2 of PA ltd and worse still if also remove the extra income due to higher % interest received on tens of millions parked in UK Govt treasuries/gilts).

[smithie6] 11/4/2024 20:09

Staff costs
...was mentioned in some recent posts

What is the real data ?

From the AR
" Staff At 31 December 2023, there were 193 members of staff (2022: 168), of whom 16 were part‑time (2022: 13)"

Note. Number of staff at PA Ltd was 32.
Cost £1.4-1.6m imo.
And £400k in 2022, ~3 months.
Increase in MFX '23 accounts due to buying PA Ltd = £1.0-1.2m, imo.
Out of an increase of £2.2m, excl MFX bod dirs.
And if ~500k was due to a pay rise due to inflation then only ~£500k was due to other factors, such as any IT work charged to P& L and any other labour costs charged to P & L. Some labour costs have been capitalised, ie. not charged to P &L.

2022 £9.8m incl. bod = £0.8m. excl MFX dirs = £9.0m
2023 £12.2m incl bod = £0.97m excl MFX dirs = £11.2m

2 full time directors & 6 part time dirs.
So, staff excluding dirs :-
2022 166 full time + 7 part time
2023 191 full time + 10 part time

If we assume for these calculations that part time is 1/2 time working.
Then
2022 = 169.5 full time workers
2023 = 196 full time workers

average cost per worker, incl. The company's social security costs, pension contributions etc:-
2022 =£9.0m/169.5= £53.1k
2023 = £11.2/196= £57.1k

However, note that these numbers are effected by higher pay to the directors of all the subsidiaries & the addition, for the first time for 12 months, of the high pay to the exec. directors of PA Ltd.
The most common cost will be notably lower.
And the actual pay to a worker, after pension payments, company social security etc etc is of course notably lower.

The numbers & the increase from 2022 to 2023 seem pretty logical to me....when one considers the addition of the staff of PA Ltd & the need to increase wages due to the high inflation in 2023.
However, the fall in underlying profit (once remove :- 1) the one off capital gain in treasuries, 2) the PAT from PA Ltd, & 3) the increase in profit due to higher % interest on treasuries) despite a ~50% increase in the loan book infers imo that the nett margin was/is too small.
How much were any other one off costs ?
Is there a licence payment to make to the UK for having the UK banking licence?

-------

The bod did the best, they awarded themselves a pay rise of £0.17m/£0.8m = 21% !!
(I will vote no to that for my shares, taking the mickey imo)

Yet the MFX PAT if one excludes the big one off gain in treasuries was down versus 2022 !!
(& if also exclude a) the increased PAT cash input from PA Ltd & b) the higher cash input to profit from the higher % return from treasuries.
Then the underlying PAT looks even worse versus 2022.
Yet the bod award themselves a 21% pay rise & without any comment or justification in the AR.
I don't understand.

[smithie6] 11/4/2024 19:50

Gregory Bailey. Non-exec
His pay went from £25k in 2022 to £59k in 2023.
Yet in 2022 he only participated (by video from Canada ?) 3/8 board meetings...& in 2023 only 5 out of 8. (£12k/meeting !).
He is in the concert party with Jim Mellon.

What contribution is he making ?
(His current expertise is in pharma stocks & pharma R& D, doesn't seem relevant to MFX business imo, although he is surely a bright chap. And based in Canada he is surely disconnected from the IoM & UK SME lending sector news.
Or did he perhaps get his board seat in return for owning ~15% of the company, if my memory is correct.

[smithie6] 11/4/2024 19:08

Page 7 of the AR.

"...reflecting the full cost of consolidating Payment Assist Limited into the Group.."

What costs have been incurred in consolidating PA Ltd in to the group ?
I can not think of any such costs, none !

Conister in the IoM lends the funds to PA Ltd (at a distance in the UK, in sunny Melton Mowbray) and PA Ltd does it's stuff in lending out that money to fund the bills of clients at garages etc. If any of the lending work is offloaded by PA Ltd to MFX ltd because of a high workload then MFX/Conister would have charged for doing that !.

What consolidation costs have occurred ?
Sure, a director from Conister/MFX has to travel to the UK to attend board meetings at PA Ltd but that is surely a negligible cost and would be paid by PA Ltd.
What other consolidation costs are MFX claiming have been created ?

Has the PA Ltd office & staff moved to the IoM ? Of course not.
Has the PA Ltd office & staff moved from Melton Mowbray to be in the Conister UK ltd offices in Basingstoke?
Of course not, imo.

------
PA Ltd contributed £0.9m PAT attributable to MFX, versus , was it, ~£0.3m for the 3 months in 2022.
An increase of contribution to MFX of £0.6m.
And that is after including all costs at PA Ltd such as interest costs from MFX, commissions, the travel costs for the director from MFX/Conister....

"Consolidation costs"
I don't see it at all.

=======

Probably it is just poor use of English in the accounts.
Sure, the data for PA Ltd has to be included in the numbers for MFX, before removing an amount from the PAT for the 49.9%of PA ltd not owned by MFX.
The total for costs goes up but also the income, & of course the profit, £1.7-1.8m for 100% of PA ltd.
There have imo been negligible consolidation costs, well, I can't think of any.

[smithie6] 11/4/2024 18:53

Be nice if the following topic could be explained in the presentation at Mello by MFX

From page 7 of the AR for '23 :-
"For the third year running, Conister Bank Limited (“ConisterR21;) set a new lending record of £352.5 million (2022: £231.4 million), an increase of 52.3%. With increases in the cost of deposits reflecting the five increases in the UK interest rate, our cost of funds was negatively impacted with yield compression of 12.7% to 71.3% (2022: 84.0%) in the year. Nevertheless, our net interest income increased substantially by £8.0 million to £32.4 million (2022: £24.4 million)"

Lending by Conister went up by 50% but the net interest income increased only by ~33%.
Why, how ?

As the income increases one expects the margin to increase because the part that is overheads gets smaller as a % of the total. And the overheads increase much more slowly, or should.

If the net interest income had increased in line with the volume of loans made then it would also have increased by ~50%, ie. 24 + 12= £36m, instead of the £32m reported. £4m less was reported.
Why ?
& Was it a one off or is it on-going ?
======

And as the real interest rate increases should the net margin not increase, rather than reduce ?
Explanation:-
A) If a depositor gets paid 1% interest, then there is natural pressure on the % chargeable to borrowers. If the margin is say 4% on unsecured loans & hence borrowers pay 5% (4+1) then borrowers are paying 5 times what the depositor is getting paid. That might receive some criticism in society.

B) whereas if depositors get 5% on deposits, then imo it is easier to charge a bigger % net margin, let us say 5% and not 4% then borrowers pay 10%, 2 X what the depositor gets paid, a much lower ratio than the previous X5.

Whereas at MFX it appears that the opposite has happened.

[smithie6] 11/4/2024 12:42

...opened the AR to look at staff costs..

& I noticed that cost income ratio was down 11%
....need to find out what cost income ratio is ! & whether a fall is good or bad
(I think it must be costs as a % of gross income, so it is good that it has fallen. (Negligent bod since the diagram they put in the AR shows an arrow indicating that it has risen, when the data says it has fallen !))

But
...personally I'm dejected that the numbers presented by MFX at the start of the AR are not the attributable numbers but the numbers including 100% of PA ltd.
:-(
So, imo the comparison in the front of the AR versus 2022 is meaningless rubbish since it is not true data, because lse:mfx does not own 100% of PA Ltd.

Each to their own opinion but imo the MFX bod should not present comparison data versus 2022 which is not true, because many potential investors will find out & there is a good chance that the confusion or doubt might put them off buying shares and they might prefer to buy shares in company X instead where the presented data is....true !!!

------
Imo it is quite difficult to break down the numbers in the AR & then construct calculations for 2024.
Some one-offs, some costs have risen a lot (commissions, banking costs, staff,....), some costs capitalized,.... difficult imo to know how those numbers might change for 2024, unless the company gave some guidance. Be great if the company broker could put out a forecast for 2024, guided by the company, but it is has never happened before so unlikely to happen now I guess.

[castleford tiger] 11/4/2024 09:31

Elsa
Not looking at increase in staff numbers
Numbers well up

[elsa7878] 11/4/2024 08:29

Most of that increase in costs will have been wage increases.

[castleford tiger] 11/4/2024 08:19

In October 2023, Conister obtained its UK Branch Deposit Taking permissions which, as well as providing an alternative source of liquidity, will allow the Bank to access new lending and liquidity opportunities. We anticipate taking UK deposits in the second half of 2024, principally via a user-friendly online process.

Overheads, excluding provisions, increased by £1.5 million to £11.9 million (2022: £10.4 million) as the business geared up to become operationally ready to take deposits in the UK. Prudently, it has bolstered its Credit and Collections teams to continue to protect Conister during these challenging times.

That seems to me 1.5 m spent with currently no return
Tiger

[smithie6] 10/4/2024 22:01

...personally I don't think we have full visibility in the accounts for the costs linked to the UK banking licence.

Some of the costs have been capitalised (not charged against the P & L calcs), some have been charged to P & L ; & some were one off costs & some are repeating on going costs.

I personally don't think the accounts give the data for each of those items (& perhaps it is commercial MFX info anyway), so it is difficult or impossible to estimate the cost for 2024 resulting from having the UK banking licence.

-----
Considerable costs have been incurred to set up the UK banking function in advance of getting the licence, (ref. text in accounts)
But this AR says that the co. doesn't plan to start taking deposits until H2 2024.
I have never operated a bank, but it seems slow before starting to take deposits.

And I had expected MFX to provide the banking for it's UK subsidiaries, & for them to deposit their cash (a few million £) with MFX UK, increasing MFX's cash held number.

[castleford tiger] 10/4/2024 16:30

I said profit 6.10 you are looking at profit after tax.

Whilst the 1.5 million ( some of which will occur each year i agree) the operation will be trading and making money



This last year these were additional costs taken to get a uk licence and get systems and staff up and running.

Had we not gone down this route DO YOU AGREE WE WOULD NOT OF SPENT 1.5M?

Therefore the profit would of been 1.5m higher.

are you with me?

[smithie6] 10/4/2024 12:41

Hmmmm

Not sure I agree with all of your data CT.

Attributable PAT was £5.3m & not £6.1m.

UK banking costs.
Some costs were capitalised & hence not charged to P& L.
Some/many costs for the new UK banking function will continue every year imo & won't vanish after the first year. Staff costs, office costs, advertising, travel, lighting, heating. These on-going costs are surely all charged to the P & L account.

There was/were some one off benefit(s) to the PAT this year, such as a large capital gain on treasuries (£1.9m as a PBT, 10% IoM tax, so I assume £0.19m tax, so, £1.7m PAT). You have assumed that it will repeat every year, but it was reported as a one off.
Removing the treasuries one off gain reduces the MFX attributable PAT from £5.3m to 5.3-1.7= £3.6m. A lower PAT than in '23. :-( despite adding + ~£0.6m delta from PA Ltd due to owning 1/2 for 12 months. If remove that you get £3.0m (3.6-0.6) attributable PAT for '24 versus , I think, £4.3m attributable for '22 ie. a fall in profit from £4.3m (2022) to £3.0m (2023). :-(

The margin on money reduced, which was a negative.

The good news was the growth at PA Ltd.
And on-going growth in the loan book & gross income.

How are the various other UK subsidiaries & associates performing?
My recollection of reading the AR was that very little or no data was given, apart from the foreign exchange subsidiary reducing its PAT by £0.7m if my memory is correct; and that the IoM wealth management part has performed better (but not a major venture for MFX, it's been struggling the last few years). (In 2024 imo the £0.7m PAT from the foreign exchange part could suffer further imo, it is clearly suffering from competition imo. Perhaps from WISE, Equals, etc, lots of new players doing FX imo, & margins are surely down.

------

The key for 2024 imo is making a bigger nett margin % between interest received & interest paid out; & reversing the fall of underlying PAT that occurred in '23. In 2023 the nett interest margin reduced, but perhaps affected by various costs linked to PA Ltd & the new UK banking function (while noting that various costs were capitalised).

[castleford tiger] 10/4/2024 12:32

ok a few key points.

Equity value 36m at last year end v market cap of 22m . So 50% under nav.

Profit was 6.1m after paying 900k to Payment assist.

We also has 1.5m costs taken this year to set up the UK banking division without anything coming back.

So next year we should be at 9 million ( 8.1 million ) net without any growth.

We could if interest rates fall be close the £10m this year.

All for a business valued at 22m ?

Then very soon we will have another million a year coming from Payment assist.

This has huge upside potential.

Get signed up to MELLO for monday night as MFX are presenting.

regards
Tiger

[stewy_18] 10/4/2024 11:53

You have a bit of reading to do elsa7878, everything noteworthy in in the history of this board.

[elsa7878] 10/4/2024 11:23

Yes - your right. Still can't see the attraction when compared to the larger banks but happy to hear the logic.

[smithie6] 10/4/2024 11:16

Elsa
There is a yield/divi here.
Is it ~0.46p/share ?
~2.3%

[smithie6] 10/4/2024 11:14

19p to sell now
Ouch.