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Morses Club scale-up drives customers and profits

The sub-prime lender beat market expectations last year
April 27, 2017

Doorstep lending is getting tech savvy, and Morses Club (MCL) hopes to lead the way. The subprime lender invested heavily in equipping its home credit agents with tablet devices during its first year of trading as a public company. This helped improve the efficiency of writing loans and collecting payments. The result was a two percentage point drop in the cost-to-income ratio to 56.9 per cent. And online instalment lender Dot Dot Loans was launched post year-end.

IC TIP: Buy at 137p

The lender is growing in scale by recruiting more agents to its home credit business. It hired 105 new agents during the year, many from its rivals. Chief executive Paul Smith pointed to Provident Financial's (PROV) recent decision to reduce its home credit business as a source of new recruits. The benefits of scaling-up were a 9 per cent increase in customer numbers and 8 per cent growth in the net loan book to £61.2m.

However, this came at a price. Morses Club pays new agents a subsidy during the first year of their employment to maintain their income, resulting in an uptick in commission costs. Mr Smith says these costs will begin to fall away by the end of the first half of the 2018 financial year.

Analysts at house broker Numis expect adjusted pre-tax profit of £19.3m during the 12 months to February 2018, giving EPS of 11.9p (from £17.7m and 10.8p in FY2016).

MORSES CLUB (MCL)

ORD PRICE:137pMARKET VALUE:£177m
TOUCH:135-137p12-MONTH HIGH:137pLOW: 84p
DIVIDEND YIELD:3.1%PE RATIO:21
NET ASSET VALUE:47pNET DEBT:10%

Year to 25 FebTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2014*21.13.54nana
2015*22.558.6nana
2016*90.610.46.1na
201799.611.26.64.3
% change+10+8+9-

Ex-div: 22 Jun

Payment: 21 Jul

*Pre-IPO figures