Morses Club - what am I missing
Have been looking at Morses Club (LON:MCL) and struggling with the courage of my convictions. Clearly there are risks but they have done alright through lockdown so far, their move to digital is encouraging and so far successful, their customers like them. I have Jack's recent write-up and concur. PE of 4.89, P/FCF = 3.5, yield 9%. They are priced for disaster but seem to be trading perfectly satisfactorily. Down another 6.5% today as I write. Am itching to buy but there has to be something significant that I am missing. Your thoughts truly appreciated!
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44 comments
Morses Club has dropped hard since Paul Smith left the company last month.
The company scores very well via the Stockopedia metrics however.
Does anybody have an opinion on this stock and its future prospects?
Prompted me to take a look. I see the profit warning and that CEO selling out before exit hit the shares hard. Profits have been smashed since 2019 and the dividend is (of course) under review. Slim margin business and would that improve or worsen with rising rates? I mean they've gotta borrow from somewhere and they already unsecured lenders so their rates to customers will be high.
They see impairment preventing their digital division moving to profit until 2023. So everything is on the doorstep lending, to a market that's got a huge and growing cost of living problem. More impairments to come here?
After Amigo I see the main issue here is the regulatory risk. I'd wait until full year results to see how new CEO is getting a grasp. One for braver souls.
Hi Bigtim,
Thank you very much for your response, you know a lot more about this than me.
Also your point about waiting for the full year results is a wise one!
Thanks again.
They see impairment preventing their digital division moving to profit until 2023. So everything is on the doorstep lending, to a market that's got a huge and growing cost of living problem. More impairments to come here?
Also - could these same challenges - borrowing rates from high street banks going up, cost of living going up etc be positives for the company in terms of new customer demand?
I agree with the chance of higher impairments but I think the closure of other competitors along with the above levers could provide a bigger pool to sell to - or be more selective with, perhaps.
Entirely possible - crisis creates opportunities. Alpha flatters me; I only had quick a look over what's here on stock and in the RNS. I would worry that they have already had impairments in digital and have closed their new bank account product.
The profit comes from doorstep lending and those people are seeing their disposable income hit - will they prioritise their loan repayments over food or heating?
Then of course there is the regulatory risk.
The shares have been battered and the lagging figures make the co look cheap but... I'd want to see some solid positive news before I took a punt. Others will be happy to spin the wheel here and they could well be right with an incoming CEO not sounding like he's about to kitchen sink anything.
74.6p SR 95 (Q88, V85, M70)
However, not heard much of a political push to make any of this a priority for govt legislation.
In the background, Provident are continuing to exit the doorstep market to cauterise their largely self inflicted problems, Non-Standard Finance remain un-recapitalised and lots of smaller competitors have quit the sector - so the market is clear for Morses as it recovers. Total market numbers will be down but MCL mkt share will be much much higher. I expect the effects to net off. Result will be return to broadly 2019 profit levels - maybe higher as increased digital lending/collection and closing of offices will have cut costs considerably.
The company reported positively on Digital developments as it announces that it will re-list on AIM under a new ticker UMY for U Money. This signals to me the Digital side will become the more important side of the business (which might cause the business to rerate by becoming seen as more of a technology play)
Net, all continues to seem to point towards steady recovery towards a profitable future.
https://www.proactiveinvestors.co.uk/companies/news/935840/morses-club-present-at-the-proactive-one2one-virtual-investment-forum-935840.html
This came out a few hours ago. A bit of a sneak preview on the future. I only viewed it with half an ear, but he doesn't sound like someone overly worried about the numbers he's about to publish.
If anything Morses seems a lot more focused on growth as a result of covid than they do potential losses and problems.
Still not loving the whole revolving CFO thing but so far everything seems to be on the up and up.
Can anyone with more experience than me pick up any danger signals? I did notice that the share price seemed to drop down from their highs after this was posted. Unsure if that's related and I just didn't catch the danger signals or just the motion of the ocean.
For my part, it looks like the company is going to come out of COVID much stronger in the long run. I suspect ethics might also be why the stock is depressed. Let's be honest, this is the most evil investment most of us hold in our portfolio's. I guess you could argue oil shares or arms manufacturers can rival it but at the end of the day, predatory loan companies are not in vogue in today's woke/ethical world among money managers...not that I think they'd spend much time looking at a company this tiny to begin with.
Studyinghard,
Thanks for sharing. I listened all through and heard lots of interesting stuff
1. First - the dog that didn't bark: impairments - the number 1 risk. However, this was something that had already declared with LY results via a 1.7Mn write down and a another 5.6Mn exceptional item treated as a post balance sheet event. The CEO did say like for like repayments were the same - just with a much smaller customer base. So my take was the 5.6Mn cleared the deck and declared impairment this year will be within the 22-26% range.
2. Some 2 acquisitions on Home Credit and 1 in Digital are currently under evaluation. There was a bullish quote that post COVID smaller competitors were 'in dis-array' since they had lacked both access to credit and technology to get cash from customers during lockdown impression these are small and could be funded with existing resources - although banks are offering more money if required.
3. Digital expected to add $1Mn/month growth going forward and to breakeven by Feb 22. Same with banking (from 10 to 50K customers next year, a significant quantity cheaply sourced from Home Collect customer.) Net, expecting a $9Mn Digital pick next year, leading to a return to FY20 profits (when he ppointed out share price was +/-150p
4. Dividends to resume from next year at 50-60% payout level
5. Additional services now allow it to target an opportunity x8 vs Home Collect as well as diversifying risk.
6. Watchout - last CFO was pushed out after 9 months and excuse of being Hampshire based with a change of family circumstance seems a bit thin. However, seems happy with new guy and interim CFO was the former CFO so little chance of anything being missed. Only niggle is that there was also mention of arguments with the auditors over COVID treatment. Did the CFO leave because he saw more risk/loss than the MD wanted to acknowledge?
7. Funding - claim bags of headroom and supportive banks. Paid off expensive debt and reduced loan facility as lots of cash came in with Covid stopping new lending. Thgis included some expensive mezzanine debt.
8. Growth - CEO very bullish in BOTH Home Credit and especially digital, In the former bounce back as soon as target market have something to borrow for - resumption of holidays?. On the latter growth plans on track and all reconfiguring done
I liked what I heard and will probably add to my existiing Morses Club (LON:MCL) holdings based on this (and vaccines etc)
Since the volume spiked up today I did a little news sweep and came across this interview from yesterday: https://www.directorstalkinterviews.com/morses-club-qa-opportunities-going-forward-are-immense-lonmcl/412943496
He pretty much resonates my own opinions and I can't really see any deep flaws in his logic. Anyone else have a more critical input/anything they can arrest him on here?
Unless there's accounting dirt (which is looking more and more doubtful) or some new major event in their way, I'd be very surprised if this stock doesn't hit 80-100 within the next 12 months personally and I won't be too shocked if it sees old levels of 120-130. I'd probably be happy to sell between 80 and 120 depending on how the business case looks by then, however I wouldn't be surprised if the company can go past old evaluations as it does honestly seem like a sleeker, more future geared company in a less competitive marked post covid.
I hate being a blue eyed optimist but barring unforseen major events it does seem pretty likely to me.
The key medium term risk is regulation - if the FCA's Woolard review is harsh on the sector or if the government steps in (again) to 'protect' people from high interests rates which might be politically popular, then anything could happen.
I wrote to the company on the issue and received a reply that they 'welcomed' the review since they expect it to benefit responsible lenders with good procesess which favour the consumer - something they think will help them long term.
My interpretation is that they expect the process to force out more smaller competitors enabling them to pick up new agents and customers on favourable terms, offsetting the long term decline in the Home Credit sector (maybe -4% CAGR before Covid which has probably pushed more into digital lending........that Morses are also entering with Dot Dot loansd and Shelby.
(Personally I now see COVID as being a limited duration problem now - another 4 -6 months at most before the economy is free again - at which point I expect Morses Clubs locked down customer base to go on a cheap foreign holiday blitz, even if they have to borrow.
Aside that, I am equally optimistic.
IMO post covid-19 the doorstep lending business model looks shaky. Short term they've moved existing borrowers onto online payments but I doubt they'll be able to recruit new borrowers at previous rate of growth. I've gone for H & T (LON:HAT) instead.
Why do you think it's shaky post-covid? Covid has unfortunately created a massive rise in people with bad credit in the UK thus expanding their potential customer base hugely.
I'm curious if I've missed something, but from where I'm standing Corona might be the best thing to have happened to Morses. It will have forced a much quicker shift to digital, both in corporate focus as well as massive boost to client adoption rates as well as creating a larger potential customer base.
Once the vaccine is distributed, doorstep lending goes back to normal save that the agents will have lost clients to the online portal, so they gain incentive to hunt new clients without the share-holders losing value (the opposite really as portal clients don't require the company to pay commissions to agents).
Lockdown and social distancing has gone on long enough to result in long lasting behavioural and attitudinal change. I think fewer borrowers will be comfortable with allowing door to door lenders into their homes and may look to alternative forms of non-standard finance e.g. pawn shops. Without the door to door personal interaction, Morses' business model is defunct.
That ignores their massive strides in the online business though (the entire reason why their profits in the last report are so down, one-off costs relating to this pre-covid).
Also, I suspect you're over-estimating people's will to change. The UK has shown that people are unwilling to stop going to pubs during the height of Corona.
I suspect a look into statistics will show us that people who worry most about Corona are also likely people with some form of higher education. Which will probably be the least represented among Morses Club customers who are likely more lower education prone. The same type of people who frankly, are not overly fussed about Corona.
I do think we will see a massive shift in digital though, but because Morses Club is pushing it themselves rather than clients being too concerned to open their doors.
Re Morses Club (LON:MCL) I agree that Home Collect is challenged as an industry going forward - it was declining by perhaps 4% pa before COVID. However, it is a bit more nuanced at a company level.
Key direct competitors (%market share) are weak:
The official Morses Club (LON:MCL) answer in today's results webinar was that
I hold and bought more today as I was reassured that no major nasties are out there. The re-instatement of a 1p final divi for last year supports that confidence. We are likely to get decent divis next year whilst we wait for the share to re-rate with the longer term drivers.
Morses Club will release its results for the 26-week period ending 28 August
2020 by no later than 28 December 2020. This date is in line with the COVID-19
guidance issued by AIM Regulation (dated 9 June 2020) which grants the Company
an extension of one month for the reporting of its half-yearly results.
----------------
See this, has me a bit concerned. Just what is the problem? Is this common in UK companies atm? Because having them drag their feet like this doesn't really make it seem like a tightly ran ship.
Or was this already an implied given from the previous extension notice on the Feb 29 end results?
Morning Studying Hard, re Morse's delay in reporting - I believe the 9th June regulation was brought in due to Covid and Auditors having issues with self distancing and lockdown in meeting previous years reporting and work deadlines.
I would assume that is why it is quoted here - to try and dispel your sort of concern
How many companies are actually needing to make use of these deadlines however? Is it very common or something of a rarity?
The volumes in todays drop does seem to signal people taking profit from yesterday/smaller investors with cold feet rather than major sell offs from the smart money I suspect (with my amateurs opinion). Personally my thesis for buying still holds so I'm staying in myself, but the nagging question is, why the delay and is it a delay common in other UK companies, in particular in their sector/size bracket.
Delays have been quite prevalent, sensible companies have been quoting the regulation to avoid spooking the SP
Having done (non regulatory) audits and been audited many times - I know that remote audits are causing more effort and time Often data is having to be downloaded and shared securely, then the auditors review come back, ask for more etc. Just takes more effort so may be genuine (BUT Not always the reason) DYOR as always
Let's cross our fingers that's the issue then, rather than something very fishy in the accounts. I still think something rotten is the only way this can be a loss at the rates I've bought in at but time will tell of course.
Personally I only invest with "training" money so at worst I'm out a couple thousand pounds even it went bankrupt. I do strongly suspect that Morses is in for a very good 12-24 months though.
Sadly I think the UK is going to have an increase in their customer base in the near future with both Brexit and Corona.
Auditors needing time extension is genuine in my opinion . I know myself remote working is causing severe problems where skill staff are required e.g. staff not being replaced, new staff not being trained , existing staff work output severely reduced .. delays due online technical problems or lack of knowledge etc. and now the backlog is getting longer .
Only yesterday I heard call centre workers was getting through 40 calls/ (closed out calls ) a day last year , now at best from there homes its down to 30 calls daily.
On top of all that staff morale is very low ..
Publication of FY20 Results
Morses Club (LON:MCL), an established provider of non-standard financial services, announces that its results for the year ended 29 February 2020 will be published on Friday 27 November 2020 Tomorrow.
just to add to the comments above . the compelling reasons for me dipping into this stock was provident financial recent update , see the link below and also i believe that morse club run a tighter ship than provident financial
see link below
https://www.londonstockexchange.com/news-article/PFG/third-quarter-trading-update/14742910
Hugh volume was traded the last few days at least 10 time the normal .. probably large a seller that got his sale through now. and this could have cause the sudden lift in price today .... just my thoughts
Anyone know why Morses Club have jumped up 28% today?
Their reporting deadline is on the 28th of this month (they got an extension). I bought some a couple of months ago and bought another helping yesterday. My reason is that I think Morses have been battered by a great deal of scandals all at once. First Wirecard (which had zero serious impact on them since they were just a service provider but stink is stink when Mr. Market is in the room). Then we have a profit warning, which seems due to the online business not developing as wanted. Then Corona. Then the second lockdown...
Looking at filings, institutional investors have also been significantly boosting their holdings in the last few weeks.
Unless there is some SERIOUS financial impropriety and accounts trickery behind the scenes (which is always a possibility when you get a reporting extension and swap CFO's....) I just can't see how their low valuation can be justified.
Unless there's a lot more debt or operating costs than I can see, I don't see why the stock shouldn't be worth twice of what I purchased it for yesterday and today I suspect shows that a lot of people agree with me. Look at the volume as well. I won't be surprised if it's institutional money driving a lot of the volume.
All that said I'm a happy amateur and even I am half worried they'll report something nasty prior to the weekend which will gutpunch my little stake. If they don't however, then I see this going at least another 100% within the next 12 months, possibly by spring already.
I'm also in Ramsdens btw which is a very similar stock but with (in my opinion!) far less risk of underlying nastyness than Morses so if you like the look of Morses, have a peek at them (and do let me know if you catch something nasty I might have missed).
Those two stocks make-up my total UK portfolio as of right now and seem like the biggest bargains available in your charming country currently.
Hi StudyingHard. Brilliant assessment thanks very much. I too own some Ramsden.
At current offer price of 35.7p - it is extremely tempting!!! Don't hold yet.
even more tempting currently - I think mr market is offering bargains today!
Just looking back to the recent SCVR report by Jack in August, he commented (55p at the time):
Everything I’ve seen so far about Morses Club (LON:MCL) suggests its COVID lockdown fall is overdone. I can’t see why this company’s shares shouldn’t be worth upwards of 100p again in future.
Robert W
Price when you wrote Sept 18 was +/-49p; today it is 38p (a further 22% decline) with SR 81 (Q82, V98 and M16). This now close the 35p March low point. I hold (and have for some time) and will buy more at these levels. If a hard lockdowns come esp in the North, then the price may drop again but on a 12-24 month basis, it looks very good to me.
Bear points
1. Obviously impairment is going to be high in short term and crucially we do not have full clarity as to how big a hit has been taken to date. In a normal onset of recession, impairment goes up but steadily so interest rates on new loans have a chance to be changed to compensate and demand increases. This time round the cliff was so fast, some extra capital will have been lost without compensation and lots of lending just blocked. Home Collect is by definition F2F.
2. Critically, the loan book has dropped and what was a -ve Home Collect market CAGR of 0 to -4% , may have seen a permanent drop in participants as borrowers get used to other means of remote lending.
3. Takeover and integration of digital assets to form a profitable next and expandable business centre has been hit (Curo - online lending will now be 2022 before it is profitable, U Bank has had problems with partners and has not grown its customer base at all since takeover
Bull Points
1. Competition are going bust and scaling back - not just direct national Home Collect competitors ( no 1 (40% share PFG) are focused elsewhere and no 3 10% share NSF (I hold sadly) who are absolutely cash strapped and might even sell of Home Collect acc to their new PE 30% dominant shareholders) but also the smaller regional and local Home Collect lenders (30+ share) who were already struggling with demanding new regulations and need to invest in technology. I expect MCL (no 2 with 20% share) to resume small scale acquisitions with a loan book of around £1mn very soon - both directly and via agent acquisition.
Net, I see MCL to emerge as 1 of 2 national leaders in a duopolistic, highly protected, highly regulated much smaller Home Collect market which will then be very profitable (but gradually ebb away)
Wider competitors (mainstream banks, payday style lenders are also pulling back and so too a lot of the online lenders)
2. MCL have moved 112/170K ie 66% of its customers to a remote collection method. So cash can be collected in the event of another lockdown and long term in normal times this can mean agents spend more time selling, prospecting and understanding customer situations by phone vs expensively calling on them to collect money. (They will still them every 2 weeks). This is a big "hidden" cost saving long term (although it will also reduce market size as customers learn to borrow and repay online - hence their move into Dot Dot Loans). But critically, cash should keep coming in to keep the lights on until spring
2. MCL's Digital Division - Strategically this is on the money and MCL have IMHO assembled and integrated an unequalled set of products for their target market very cheaply and conservatively....they just got a bit unlucky with COVID and Wirecard . They really understand their target market (poor sub prime borrowers) and have been conservative in how their have learnt and grown. Exiting 3 month loans to focus on 6-12months is I think smart and I can see lots of cross selling opportunities over time. Suub prime borrower numbers are going to boom - the skill will be to only take on the right borrowers and I like the MCL approach to this.
3. Given the govt's furlough and other payments have delayed mass unemployment and benefits have continued to be paid, enforced savings across the summer (no foreign holidays and less chance to spend money in pubs or on parties), I think HH savings may be in better shape than some imagine. Many/most MCL customers have low incomes normally and some may even have seen boosts (a lot of customers are female NHS and care workers). So whilst payment deferrals etc may have been taken I think ultimately quite a bit of provided for bad debt may come back (because these existing customers know they will need to borrow again in the future; life is tough at the bottom.)
4. A vaccine/adequate treatment/acceptance of some deaths in over 70's through societal fatigue all leading to a re-opening of F2F selling will help. Looking past the noise, I think this will be in place by next summer - although it may be a rough winter before. Everyone will then be desperate to i) go on holiday ii) get married iii) party like its 1999 plus buy the bigger ticket items like washing machines and sofas that they are now deterring out of financial fear. The will want/need to borrow to do so.
Net, net, although MCL price might go down again if there are full lockdowns, I think MCL have the market understanding and balance sheet strength to survive and then will make hay in 2022 and beyond.
but maybe International Personal Finance (LON:IPF) is a slightly better choice?
going concern issue was raised in most recent TU. Hence recent big drop. DYOR
International Personal Finance (LON:IPF) I was referring to
ah, thanks (my mistake - comments not being threaded left it out of context) - yes, of the doorstep lenders I would indeed be avoiding International Personal Finance (LON:IPF) (also due to their massive debt) and would be buying Morses Club (LON:MCL)
I had a quick look through both the recent 2 TU rns's but couldn't see this mentioned? I guess I missed it though..
did you happen to have the text to hand please?
thanks!
Look at the broker forecasts (the StockReport graph) ..that's the big drag factor at first glance?
Just had a look at Morses F score and it looks pretty grim. If you click on the F score it will give you a breakdown of what it passes and fails on.
To be fair, an F-Score of 4 out of 9 is not disastrous, and three of the measures are borderline.
Pricing power and productivity are flat year on year, when the F-Score test is for them to be increasing.
Liquidity is down "sharply" with the current ratio falling from 9.59 to 5.00, but 5.00 is still a good value for this ratio.
I do though agree with wilkonz, I would want to see an improvement in sentiment personally before investing - perhaps it is concerns about defaults.
I would say the risk of defaults is the reason. I held Morses before the lockdown and did ok but wouldn't touch them now until the economic picture looks better.
From the chart below it seems that this may not be the best time to buy Morses Club (LON:MCL) as the price is in a strong downtrend:
The price is well below the 200 day EMA and has dropped below the 50 day EMA. The market clearly does not like this stock despite some decent fundamentals. My guess is that there are concerns about default on debts. This is a high risk business. It might be worth waiting for the price to rise strongly above the 200 day EMA (76 pence) before investing. I personally would give this stock a wide berth but wish you the best of luck if you decide to take a punt.
wilkonz
I'm not a technical analyst but it looks as though the 'strong downtrend' is a consequence of the sharp drop caused by the pandemic, which happened just before your chart begins. Apart from that, the price has been fairly flat since May. Doesn't that cast doubt on your interpretation of the EMAs? I hold.
Hi FREng. Yes, technical analysis has well documented limitations. And I don't claim to be an expert my any means. But this share is currently trading at 40% of its pre-Covid price and travelling sideways, whilst other shares are now regaining lost ground and touching 52 week highs. Although I have great respect for Morses Club as a company and believe it may well be a reasonable long term investment at 50 pence (which seems to be its support level), I think there are much safer havens for our money in the short term. But that's just my opinion and I'd be interested to know what more experienced investors think.
Thanks all for your comments