Zeus Capital Research Director Robin Savage caught up with DirectorsTalk for an exclusive interview to discuss Mortgage Advice Bureau (Holdings) PLC (LON:MAB1)
Q1: Now, Mortgage Advice Bureau’s 2016 latest results show 23% revenue growth, 21% gross profit growth, 20% growth in underlying profit and 46% growth in total profit before tax including exceptional gains. Are these results as good as they look?
A1: Well, in a word, yes. Not only are the underlying earnings per share up 18% but the regular dividends per share are up 27%, that’s an increase in the pay-out ratio but also reflecting in the growth. In addition, the shareholders have received a special dividend in respect of 100% of the exceptional gain which was made during the year. Shareholders should be particularly pleased with the 26% growth in the number of advisers to 950 advisers by 31st December 2016, the number of advisers is, to my mind, a key indicator of Mortgage Advice Bureau’s capacity to generate revenues and therefore profits, earnings and dividends. The average number of advisers in 2016 was 888 which was up 23% on the year before so that is clearly the key reason for the growth in revenues and profits. The average number of advisers is not only the driver of 2016 but will also be a key driver of growth in 2017 and beyond.
Q2: In the Chief Executive’s review, he draws the reader’s attention to the Council of Mortgage Lenders’ forecast of UK housing market with no growth in transactions in 2017 and 2018. How does the group growth if there’s no housing market growth?
A2: Going back to the point I just made a moment ago, it grows by increasing the number of advisers. Mortgage Advice Bureau currently, at this particular moment, has around about 976 advisers which is 15% above the average for the first half of last year. So, even with no growth in market transactions, Mortgage Advice Bureau’s revenue growth in 2017 should be higher than 15% and as the first half of 2016 was particularly active I would expect the growth in the first half of 2017 to be a little bit subdued compared with the year as a whole. However, for the calendar year 2017 and 2018, I would expect their growth to be driven by the growth in the number of advisers and also by some increase in productivity. Mortgage Advice Bureau’s management is very confident that it will be able to deliver the adviser growth of over 15% for this year and next and there are a number of key initiatives which will improve productivity.
Q3: Now Tuesday saw MAB1 shares rise 8% to 389p, putting it within 3% of MAB’s all time high of 400p which was reached in April 2016, where do you see MAB1 shares trading over the next few months?
A3: I think investors should recognise Mortgage Advice Bureau’s ability to pay out earnings as dividends and they should value the stock on a dividend yield. In 2016, MAB paid out all of its exceptional gain and 90% of its underlying earnings and this year we expect them to continue to pay out 90% of the underlying earnings and any gains which happen to arise. We’ve forecast 2017 dividend per share to be 21p a share which is 15% above the regular dividends for last year so 15% growth is a very very attractive level of dividend growth for the UK market.
At 389p, MAB1 shares trade on a 5.4% current year dividend yield, bear in mind the whole market is on a dividend yield of 3.7%, admittedly that’s partly because there are some shares that just don’t pay dividends because they need to retain the earnings to grow. At £4 a share, MAB1 shares would trade on a 5.3% dividend yield which is 41% above the market yield I’ve just mentioned. At £4.20, the dividend yield would be 5% which is a 34% premium to the market and I would think that that is a perfectly reasonable level for the shares to trade at. With above market growth expected in 2018 and beyond, MAB1 shares are arguably still attractive even at levels of £4.20 or higher.
So, in short, Mortgage Advice Bureau shares have both growth and dividend yield attractions.