Mortgage Advice Bureau reaps the housing benefit

Sitting atop the highest number of house sale completions that the UK has seen since 2007 meant that Mortgage Advice Bureau (MAB1) would have had to try very hard to post an average set of interim results. In the event, the half did not disappoint and, powered by a 50 per cent increase in new mortgage lending compared with 2020, meant the company enjoyed a huge interim windfall. However, as with all matters related to the property market, the question turns quickly to whether the unprecedented market activity can continue at its current pace

Management’s own view is that there will be some softening of demand through the second half as the full tapering effect of the stamp duty holiday comes into play, though underlying demand should continue. The company’s capital-light business model means that it generates a significant operational gearing, and it would require a downturn of some magnitude for it to go into reverse. That analysis is borne out by the cash conversion rate coming through the cash flow statement. In these results, MAB reported net cash generated from operating activities of £14.7m, compared with £5.9m in 2020, giving an impressive conversion rate of 130 per cent.

With no bank debt, the fundamentals for MAB look solid, if the mortgage market continues to move throughout the second half. However, the slightly softening outlook is clearly a worry for some investors, who marked down the shares on the back of these results. A forward PE valuation of 27 times consensus forecasts for 2022, leaves little room for error and earnings expectations looked well priced to market. Hold.

Last IC View: Hold, 1,078p, 23 Mar 2021