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Morses pays price of credit expansion

The sub-prime lender has accelerated its agent hiring programme
October 5, 2017

Morses Club’s (MCL) heavy investment in growing agent numbers over the past year has had the desired effect on its customer base and its loan book. During the six months to August, customer numbers increased 12 per cent, while credit issuance was up a quarter to £82m. However, this has yet to translate into extra profit, which was broadly stable at £8.7m once the previous year’s one-off costs were stripped out.

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The sub-prime lender pays its home credit agents commission to cover them while they build a customer base, which can result in a lag in profitability. Commission costs increased by a fifth to £13.1m during the period, but management said hiring activity has peaked, and that after January it will return to a more normal level of 100 new agents a year. Credit impairments also increased to 26.6 per cent of revenue, from 22.5 per cent during the 2016 half-year. Taken as a proportion of credit issued, impairments came in at 17.5 per cent, up from 16.1 per cent year on year.

The group also took £0.3m in start-up losses from its online instalment loan provider Dot Dot Loans. Management says it is moving into the final stage of development, choosing a lead-generation model, which will help it gain a more accurate picture of the average amount it needs to spend acquiring customers. Investment in its Dot Dot Loans will be slightly higher during the second half.

Analysts at Shore Capital expects 2018 adjusted pre-tax profit of £18.6m for the 12 months to 25 February and EPS of 11.5p (from £17.7m and 10.8p in 2017).

MORSES CLUB (MCL)   
ORD PRICE:140pMARKET VALUE:£181m
TOUCH:140-145p12-MONTH HIGH:161pLOW: 105p
DIVIDEND YIELD:3.1%PE RATIO:18
NET ASSET VALUE: 47pNET DEBT:15%
26 weeks to 26 AugTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201647.23.52.72.1
201754.25.13.92.2
% change+15+47+47+5
Ex-div:28 Dec   
Payment:19 Jan