# Morses Club Hardman & Co Analyst Q&A (LON:MCL)

- Link: https://www.directorstalkinterviews.com/morses-club-hardman-co-analyst-qa-lonmcl/412805367
- Published: 2020-02-11T10:23:14+00:00
- Author: Amilia Stone

**[Morses Club](https://www.directorstalkinterviews.com/company/morses-club-plc/mcl.l)
PLC **([LON:MCL](https://www.directorstalkinterviews.com/company/morses-club-plc/mcl.l))
is the topic of conversation when **Hardman and Co**’s Analyst Mark Thomas caught
up with DirectorsTalk for an exclusive interview.

**Q1: You called your recent note “Value-added, customer-driven expansion from core”,
what can you tell us about that?**

**A1: **Morses Club’s October results highlighted the strength of its traditional
and core business in Home Collect. That division showed operational efficiency improvements,
the appropriate use of technology and improving credit generating double-digit underlying
profit growth, despite a stable market. Importantly, the agent-driven model uses
technology to improve performance and unlike some others has not changed the model
to meet technology.

In our note, what we focused on was MCL’s strategy to expand from this strong core
business. The strategy is driven by extensive customer surveys and could see a doubling
in both the number of customers and the share of wallet over the medium term. Investment
is being paced to balance short- and long-term profitability.

**Q2: It sounds like you think how the strategy was formulated from customers is
important. Why?**

**A2: **Some companies formulate their strategy from the CEO’s perception of what
customers may want. Others, like MCL, dive deep into the customers’ actual preferences
through surveys, feedback and behavioural analysis. We believe the latter is a more
robust approach to setting a strategy to meet customer demand.

MCL’s CEO, in the recent results meeting, advised that the proposition now being
advanced was derived from more than 100 surveys over several years. While the core
HCC business has many attractions, it is clear that there is significant potential
to retain and win more customers and serve a greater part of their wallet than offering
this product in isolation.

We note that, in its recent Capital Markets day, Provident Financial reported many
of the same customer demands, while outlining its approach to Provident Direct.

**Q3: So, what is the company expanding into?**

**A3: **Morses is rolling out two major products to its customer base (online loans
and current accounts) as well as developing a customer portal with a broad range
of services. The product areas were transformed by acquisitions in 2019 – in online
lending with CURO Transatlantic and in current accounts with U Holdings Limited.
Both brought to Morses Club key product systems, experience and data, which can 
then be applied to both new customers but also in many cases across Morses Club 
existing customer base.

Looking at the online lending business : i) historically, CURO delivered very strong
growth in this area; ii) the acquired analytics have been based on huge datasets
of customers; iii) intermediaries are always looking for new suppliers of credit;
iv) the potential market is huge; v) we believe that, if economic conditions weaken,
a number of peripheral players will withdraw; and vi) the redress for historical
mis-selling is likely to put pressure on some other lenders in the same way as it
did on CTL.

**Q4: And how big is the opportunity for Morses Club?**

**A4: **There are three aspects to consider.

First, how much of the customer wallet can Morses Club serve. MCL advises that, 
for HCC customers, home collect is, on average, only 27% of their total debt. Customers
additionally hold nearly 20% in credit cards and overdrafts, 11% in unsecured personal
loans, a couple of percent in high-cost, short-term credit, and the balance in things
like store cards, catalogue debt, motor finance, etc. The expanded product and distribution
range now offered is believed to serve 59% of the customer wallet, compared with
27% in HCC alone.

Second is retaining customers who may have left Morses Club to take up other products
elsewhere. For MCL, around 40,000 customers (ca.20%) leave every year, although,
over time, around 16,000 of these will ultimately return to the company for credit
at some future date. While some of the 24,000 permanent leavers no longer need credit,
the vast majority take credit from other providers at a lower cost, as their credit
records have improved.

Finally, there are totally new customers who would never have taken the home collect
product and having options for younger customers with the same financial needs is
an opportunity for MCL[?]. Financially, management expects the online business alone
to deliver an extra 5-10% to adjusted pre-tax profits in FY’22 while strategically
it creates options for growth which home collect alone cannot offer.

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