Updates From The Consumer Finance Industry

Updates from the Consumer Finance Industry

Morses Club (MCL) Releases Trading Statement

Morses Club PLC (MCL) is a Batley, United Kingdom-headquartered cash generative, consumer finance business which provides doorstep loans of small nominal amount throughout the country. The group is one of the largest home credit providers in the UK and operate through a network of branches, offering small cash loans from GBP 100 to GBP 1500. The company in its current form was established in 2015 after the merger of Shopacheck Financial Services and Morses Club, two established brands in the Home Collected Credit (HCC) market to create a brand with the second largest market share in the UK HCC market. The company has around 230,000 customers, spread throughout mainland United Kingdom and Northern Ireland, and aims to build a market-leading UK non-standard consumer finance business.

Doorstep loans, also known as home collection loans, are a form of personal loan that is delivered to the door of the borrower and collection is made via agents who usually operate in the same communities as the customers. In order to be eligible for a loan by the company, the borrower may need not be a homeowner as the company provides unsecured loans for tenants living in various circumstances.

On 25 June 2019, the company announced its trading statement for the first four months of the current financial year, covering the period from 24 February 2019 to 24 June 2019. The company reported that it made considerable progress in its strategy to diversify digital products, which would enable customers to access credit flexibly, and helping to increase its customer base by over 25 per cent. To suit the financial needs of the non-standard credit market, the group will accelerate its ability to offer a broader range of lending products. The company forecasts that the business of the company would be earnings accretive by the financial year 2021.

The company added that it continues to focus on differentiating its products and offering high-quality lending. In line with this, the company launched its customer portal in March, which has received very positive customer feedback and has reached 25,000 active users within its first three months. Though the company said that current trading conditions remain in line with expectations, the company has faced challenges year to date in its core Home Collected Credit market. As customers are borrowing less frequently, credit issued is slightly down year-on-year, despite stable customer numbers. However, in accordance with its goal of serving customers’ needs, the company will continue to expand and diversify its product offering using technology.

On 24 June 2019, the company announced that it had acquired U Holdings Limited through its wholly owned subsidiary Shelby Finance Ltd for initial cash consideration of GBP 5.8 million and deferred consideration of up to GBP 5 million. The deferred consideration is conditional upon certain net profit criteria having been met and is payable in cash over the next four years to February 2023. U Holdings Limited offers an alternative to conventional banking by offering a fully functional agency banking service and focuses on customers who are underserved by traditional banks. The acquisition of U Account includes technology and e-money banking platform of the company, as well as its 20,000 current active customers, and is an essential step in the strategy of building a digital offering to allow customers of Morses to access credit flexibly. The digital platform of U Holdings would be complementary to existing offering by Morses as many of its existing customers have expressed interest in opening an online current account.

In the latest yearly filing for the financial year 2019, the company reported that pro forma revenue increased by 6.0 per cent to GBP 117.0m and reported revenue increased by 0.3 per cent to GBP 116.6m. Total credit issued increased by 2.4 per cent to GBP 178.5m, while net loan book grew by 0.3 per cent to GBP 73.0m. Statutory profit before tax was up by 25.5 per cent to GBP 20.2m and adjusted profit before tax increased by 14.6 per cent to GBP 22.0m. The company reported a 2.6 per cent increase in customer numbers to 235,000 and proposed a final dividend of 5.2 pence per share, an increase of 8.3 per cent. While the reported earnings per share for FY19 was 12.5p as compared to 10.1p for FY18, an increase of 23.8 per cent, the adjusted earnings per share for FY19 was 13.6p, an increase of 16.2 per cent relative to the 11.7p for FY18. Cash from operations excluding investment in the loan book increased by 6.1 per cent to GBP 24.3 million, while the total equity for the Group increased by 6.8 per cent from GBP 66.5 million reported in FY18 to GBP 71.0 million in FY19.

Share Price Commentary

Daily Chart as at June-25-19, before the market closed (Source: Thomson Reuters)

On 25 June 2019, at the time of writing (before the market closed, at 12:20 PM GMT), MCL shares were trading at GBX 141, down by 6 per cent against the previous day closing price. Stock’s 52 weeks High and Low is GBX 186.80/GBX 121.97. Stock’s average traded volume for 5 days was 99,594.20; 30 days – 231,335.87 and 90 days – 127,327.49. On the valuation front, the stock was trading at a trailing twelve months PE multiple of 11x compared to the industry median of 8.5x. The company’s stock beta was 0.19, reflecting less volatility as compared to the benchmark index. The outstanding market capitalisation was around GBP 194.7 million, with a dividend yield of 5.20 per cent.

Monzo Announces New Round of Funding

Monzo is a UK-based digital bank with more than two million account holders, which provides an alternative to conventional banking. On 24 June 2019, the banking group announced that it had closed a fresh round of investor funding, which gave the company a new GBP 2 billion post-money valuation. In the latest funding round, which was led by Y Combinator Continuity, the group raised GBP 113 million of fresh funds. The company had raised its last fundraising round eight months ago, but the new investment by existing as well as new backers have doubled the British digital bank’s valuation since then.

The app-based bank has proven adept at attracting users and the latest round of funding shows investors are still keen to back upstart financial technology companies. The company has grown rapidly in the four years since its 2015 launch when it used to only offer a prepaid debit card which was managed through a mobile app. It started to offer current accounts in 2017 after it secured a full banking licence. In its home market, Monzo is particularly popular among millennial customers with a strong following among 20 to 35-year olds and perks such as cheap foreign exchange has helped it to attract more than 2m customers but also contributed to rising losses. The banking app enables customers to keep tabs on their expenditure and split bills with friends by offering a multitude of services, and that has scored amongst many millennials, who find money a stressful business.

With no bank branch network to use up the cash, the company intends to use the fresh funding to expand business in the UK and support its growth in the US, where it announced its launch earlier this month, and to develop new products to move it closer to sustainability. According to Tristan Thomas, head of marketing, the group early response to its US opening had been incredible, and it is on track to sign up 250,000 new customers this month, with thousands more signing up to its US waiting list. In the longer term, Monzo plans to apply for its own US bank license, though the launch is being done in partnership with a local bank. The company has started rolling out Monzo Business Accounts to more of the 15,000 business owners on our waiting list and customers can now earn interest on their savings with savings accounts provided by other banks or switch energy supplier straight through the app, along with a host of other services.

Anu Hariharan, YC Continuity partner, said Monzo was well on its way to rapidly scale higher revenue and ensure sustainability and is the first banking company to transform the modern banking experience for customers. While the company said it is already well-capitalised and will use the extra capital to underpin its growth strategy as well as gain a foothold in the US, the decision to raise fresh funds so soon points to a growing concern in some quarters that the benign investment environment may not last.  Mr Thomas defended the move by the company and said that it was better to raise funds when they were not required versus when they are required within a month. He further added that he would not like to be at the whims of the economy, and the company was feeling confident at that point of time.

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