Soon after Morses Club (MCL) published its interim results, shares in the sub-prime lender fell to a three-year low. Within minutes, chief executive Paul Smith sought to explain the decline: pointing to weak trading volumes, he suggested retail investors had simply overreacted to a 9 per cent fall in adjusted pre-tax profit and a decline in home-collect credit (HCC) customers.
Mr Smith is confident a share price rebound is due. Citing recent conversations, he told us “four to five” institutional investors – currently hemmed in by a lack of liquidity – have set aside reserves to increase their holdings.
Half-year figures weren’t an obvious boost to that reported bullishness. Morses’ investments in digital lending, part of a push to broaden lending products and adapt to demand, accounted for most of the like-for-like revenue uplift, and added 51,000 or so customers overall. But an adjusted pre-tax loss of £3.5m for the division was probably more than investors had expected, and held back the return on assets.
In the main HCC business, rising affordability test standards led to slower credit issuance and lower impairments, and an improved cost-to-income ratio – a performance Mr Smith sees as “extraordinarily positive” relative to listed peers Non-Standard Finance (NSF) and Provident Financial (PFG).
Analysts at Peel Hunt expect adjusted earnings of 12.7p per share for the year to February 2020, rising to 25p in FY2021.
| MORSES CLUB (MCL) | ||||
| ORD PRICE: | 108p | MARKET VALUE: | £142m | |
| TOUCH: | 108-113p | 12-MONTH HIGH: | 187p | LOW: 108p |
| DIVIDEND YIELD: | 7.2% | PE RATIO: | 10 | |
| NET ASSET VALUE: | 53.7p† | NET DEBT: | 22%^ | |
| Half-year to 31 Aug | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018* | 57.5 | 10.0 | 6.25 | 2.6 |
| 2019 | 66.3 | 6.7 | 4.13 | 2.6 |
| % change | +15 | -33 | -34 | |
| Ex-div: | 24 Dec | |||
| Payment: | 17 Jan | |||
| †Includes intangible assets of £20.7m, or 16p a share. *26 weeks to 25 Aug. ^Excludes £3.5m of lease liabilities. | ||||
