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Mortgage Advice Bureau (Holdings) PLC

Mortgage Advice Bureau Hybrid journey to 2020

Revenue & market share growth through adviser numbers & productivity

Since its IPO in November 2014, Mortgage Advice Bureau (Holdings) Plc (LON:MAB1) has delivered on its strategy for growth and built its market share from 3.0% in 2014 to 4.1% in 2016.

Over the three years to December 2016, MAB has increased:

* adviser numbers by 22% 3-year-CAGR to 950 advisers;

* revenue per adviser by 8% 3-year-CAGR to £105,000 pa;

* revenue by 32% 3-year-CAGR to £111m;

* gross profit by 29% 3-year-CAGR to £25.6m;

* PBT by 34% 3-year-CAGR to £12.5m;

* profit after tax by 35% 3-year-CAGR to £10.2m.

In addition to increasing market share by increasing adviser numbers (management targets 15% pa) management’s strategy focuses on:

* enabling technology

* brand and distribution

* strategic investments and JVs.

MAB’s annual conference showcased its technology, and its brand and distribution initiatives, many of which involve strategic investments (e.g. Vita, Freedom 365). In this note, we draw together comments from this conference and our view of MAB as a “network” which enjoys “network economics”. We see increasing returns to scale and, on the demand side, improving revenue stream quality.

Investors can see evidence of the quality of MAB’s business model by comparing consensus earnings forecasts to actual results for the 2.5 years it has been listed on AiM. Our analysis (page 8 of this note) shows that MAB’s 2014, 2015 and 2016 revenues, adj PBT and EPS have been remarkably close to forecasts. In our opinion the quality of MAB’s growth should be reflected in its valuation multiples.

Zeus Valuation: At 405p Mortgage Advice Bureau (Holdings) Plc shares are trading on 17.6x current year’s earnings and, with prospects of 21% growth in 2018, a Price-Earnings-Growth ratio of 0.8x. We calculate that on our forecasts and assuming a terminal value based on a 4.3% dividend yield, the current price of 405p is consistent with a risk discount rate of 21.4%.