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Leap in Morses Club returns

The home credit collector's return on equity climbed to 27.2 per cent in the year to February
May 3, 2019

Full-year results for Morses Club (MCL) were somewhat skewed by a switch to the IFRS 9 accounting standard, though a pro-forma measure of the acquisitive door-step lender showed strong progress on several fronts.

IC TIP: Buy at 179p

On a like-for-like basis, the cost-to-income ratio dipped 2 percentage points, impairments fell 10 basis points, while the net loan book climbed 6 per cent to £73m. Consequently, had IFRS 9 had been used in last year’s numbers, pre-tax profit would have risen 30.3 per cent.

Despite an increase of just 20 collection agents in the period to 2,050, commissions rose from 21.3 to 22.7 per cent of revenue. However, this didn’t prevent the return on equity from rising 4.3 percentage points to 27.2 per cent, which sets a high bar for the integration of Morses’ string of recent acquisitions.

Of the approximately 400 smaller home-collection credit providers in the market, the group is screening between 20 and 30 players with loan books ranging from £1m to £13m, and has identified a “pipeline of competitors”, as well as online banking ventures, to potentially acquire.

Peel Hunt thinks Non-Standard Finance’s hostile bid for Provident Financial Group could disrupt the industry and offer Morses “the opportunity to maintain or even exceed previous levels of home credit collection growth”. The broker expects adjusted pre-tax profits of £26.9m and earnings of 16.7p for the 12 months to February 2020, rising to £30.4m and 18.8p in FY2021.

MORSES CLUB (MCL)  
ORD PRICE:179pMARKET VALUE:£232m
TOUCH:176-179p12-MONTH HIGH:187pLOW: 122
DIVIDEND YIELD:4.4%PE RATIO:14
NET ASSET VALUE:54.7pNET DEBT:9%
Year to 23 FebTurnover (£m)   Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2015*22.558.6n/an/a
2016*90.610.46.1n/a
201796.211.26.66.4
2018116.616.110.17.0
2019116.820.212.57.8
% change+0.2+25+23+11
Ex-div:27 Jun   
Payment:26 Jul   
*Pre-IPO figures