Mortgage Advice Bureau offers income and growth

Tighter regulation under the mortgage market review - which came into force in 2014 - has driven up the cost of running a mortgage lending operation for banks and building societies, which are already dealing with meatier capital buffer requirements. This is because the rules state that only fully qualified advisers should handle the decision-making process with borrowers, who must seek advice. What's more, more lenders have opened up to dealing with brokers.

This is good news for MAB, which has a fast-growing adviser base. The group operates via a network of qualified mortgage advisers, the majority of which trade under the MAB brand. These 'appointed representatives' avoid the technical, compliance and commercial burden of being an independent broker by effectively outsourcing these back-office jobs to MAB. In return, these brokers pay a proportion of their turnover to MAB. Last year, the group increased its average number of advisers by a quarter to 790, as a result of recruiting new broker companies and growing existing brokerages in its network. Since the year-end, this has been bumped up to 844. This pushed up revenue by a third during the period, as revenue per adviser also increased 8 per cent. Management expects to grow its adviser base at a minimum compound annual growth rate of 15 per cent over the next few years.

UK home purchase transactions in 2015 were broadly flat compared with 2014. However, the CML expects momentum for mortgage lending to grow at 8 per cent this year and 10 per cent in 2017. Although buoyant house prices are playing a part in growing procurement fees too. The group grew its market share by almost a fifth last year, albeit to just 3.6 per cent of the broking market. Leaving MAB plenty of scope to continue to take market share.

However, management does expect to see some erosion of its gross margins from 2016 as it takes on larger brokerages and grows its existing adviser companies. The group receives a slightly reduced margin as its existing adviser companies grow their revenue organically by increasing their adviser numbers. Margins were flat in 2015 at around 24 per cent.