SIF Portfolio: Morses Club could lend the portfolio a profit

Tuesday, May 15 2018 by
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SIF Portfolio Morses Club could lend the portfolio a profit

The main UK stock market indices are all trading close to all-time highs. The minor blip seen earlier this year is has passed, and stocks have surged ahead over the last month.

One consequence of this is that fewer and fewer shares are qualifying for my Stock in Focus screen. A month ago, 18 stocks qualified for the screen. On Monday, this number was down to 10.

This is by design. As I’ve discussed before, my hope is that by combining valuation and momentum measures, my screening rules will leave me on the sidelines with a pile of cash when markets overheat or start falling.

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There’s only one stock I can consider for the portfolio this week, so let’s take a look.

Jim Slater might like this

The late Jim Slater might be tempted by this week’s stock. AIM-listed Morses Club qualifies for the Jim Slater ZULU Principle Screen, and has qualified for my screen since issuing full-year results at the end of April.

This £195m firm is a doorstep lender with a 130-year history, in the mould of Provident Financial. Indeed, Morses is thought to have recruited ex-Provident collection agents and expanded into new territories as a result of the larger firm’s botched restructuring of its home credit business last year.

Morses’ net loan book rose by 19% to £72.8m during the 52 weeks to 24 February, while customer numbers rose by 6% to 229,000. Impairments rose from 24.4% to 26.1%, but this was still within the firm’s guidance range of 22%-27%. Adjusted profit before tax rose by 8.5% to £19.2m, and shareholders received a 10% dividend increase.

Overall it was a good year for the firm, in my opinion. And although it carries some regulatory risk, I rate this business quite highly. I’m also encouraged by the shareholder list, which includes small-cap specialist fund manager Miton, with a 7% stake. CFO Andy Thomson also has skin in the game, with a 2.35% stake worth about £4.7m.

Can I really buy this?

Regular readers will probably have noticed that the SIF portfolio already contains a sub-prime lender, pawnbroker H&T Group. Although I estimate that personal loans accounted for less than 10% of H&T’s gross profit last year, pawnbroking generated almost half the…

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Morses Club PLC is a United Kingdom-based home collected credit (HCC) lender. The Company is a consumer finance business focused on the home collected credit market. The Company operates under the Morses Club brand and provides unsecured loans to customers over 20-78 week periods, which are repayable on a weekly basis. It provides a range of loan products through a combination of traditional and online marketing channels. The Company's main country of operation is the United Kingdom. more »

LSE Price
149.75p
Change
 
Mkt Cap (£m)
193.9
P/E (fwd)
10.3
Yield (fwd)
5.6



  Is LON:MCL fundamentally strong or weak? Find out More »


6 Comments on this Article show/hide all

shine66 15th May 1 of 6
1

Great, detailed analysis. A month or so ago Morses Club (LON:MCL) CEO Paul Smith was one of several lenders hauled before the select committee working on the new regulations. He put in an impressive performance and coped well when the questioning turned nasty (over how some borrowers who are signing contracts may in fact be illiterate). They seemed to want blood, though. Follow-on loans could be in their sights, in particular.

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Zoiberg 16th May 2 of 6
1

750% APR? That's exploitation in my book.

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shine66 16th May 3 of 6
1

In reply to post #364243

I totally disagree. In real terms the pay-back will be 82% at most. Here's a link to the numbers. As was pointed out to the select committee this is about the same figure that the Church of England came up with a couple of years back as the minimum likely 'break-even' rate when they were looking at encouraging community-based lending themselves. Despite the government patting itself on the back after the last round of rule changes there's evidence of strong growth in dodgy un-regulated back street lending to the least creditworthy and most vulnerable, with all the consequences that entails.

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Zoiberg 18th May 4 of 6
1

From the website: " Lenders are required by law to display their APR to allow people to effectively compare loan products. Our APRs at Morses Club are as follows:

20 week loan: representative 756.5% APR"

Required by law. Not disguised by b/s.

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shine66 19th May 5 of 6

I don't think Morses Club (LON:MCL) are hiding anything or deceptive about the cost of their loans. Maybe I'm missing something? 

5aff59dc9dfecmorses2.png
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shine66 9th Jul 6 of 6
1

H & T (LON:HAT) are seeing rapid growth in loans. Their £200 loan over 20 weeks comes to £350.70, fifty quid more than the loan from Morses.


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About Roland Head

Roland Head

I'm a private investor and writer on stock markets, with a particular fondness for free cash flow, dividends and value. I also have a lingering interest in commodity stocks. In earlier life, I worked as an engineer in telecoms and IT. The rules-based approach required for this kind of work undoubtedly influenced my investing style. I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a large and now defunct Canadian firm.  My investment focus is increasingly on developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. more »

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