Interactive Investor

Insider: Morses man piles in after rival’s exit 

17th May 2021 09:40

Graeme Evans from interactive investor

There’s a great opportunity for the second-largest player in this industry, and this director knows it. 

The exit of Provident Financial (LSE:PFG) from doorstep lending has boosted the boardroom outlook at rival Morses Club (LSE:MCL) after one of its key directors bought £150,000 worth of shares.

Provident announced plans last Monday to close or find a buyer for its home credit business, which has been in operation for 141 years and is the biggest in the UK.

Analysts point to the opportunity that Provident's withdrawal and others in the non-standard lending market may present for Morses, which is the second-largest player with 151,000 home credit customers. It also has two online brands, Dot Dot Loans, and U Account, which offers online e-money current accounts.

Morses posted annual results on Thursday, after which chief operating officer Gary Marshall bought 250,000 shares in the AIM-quoted company at a price of 61.25p. The stock had been around 130p prior to the pandemic, before plunging to as low as 32p in November.

Lockdown prevented it from lending to new doorstep customers for five months of the financial year, while many existing clients had little or no requirement for credit services.

These factors and a more cautious overall approach during the pandemic reduced the group's loan book by 26% to £53.5 million in the year to 27 February, while the total number of customers fell 29% to 180,000.

But chief executive Paul Smith believes the past year has been “transformative” for Morses as it forced the company to innovate and accelerate its digital strategy. Two-thirds of lending in the home credit division is cashless and 80% is now collected remotely.

Smith added: “The accelerated shift to digital is permanent and the investment the group has made in technological infrastructure over a number of years stands us in good stead.”

The group is still profitable, albeit 53.5% lower at an adjusted level to 3.9p per share. It is also planning to pay a final dividend of 2p a share on 2 July as a measure of its confidence.  

Much may depend on the recovery of the UK economy, although Smith points out that the non-standard finance sector has proven resilient in the past should the downturn last longer.

Provident's exit from doorstep lending was hastened by a surge of complaints from borrowers seeking compensation for loans they said they couldn't afford. Morses has also seen a rise in complaints forwarded by claims management companies, but adds that the level is proportionately lower than other lenders in the sector.

In a note this week, Shore Capital said the use of a Scheme of Arrangement by Provident to cap the cost of customer complaints may benefit Morses if it means claims companies are deterred from pursuing other operators in the lending space.

Shore has a ‘buy’ recommendation and 75p target price, which is the same as Peel Hunt after the house broker said Morses had come through the past year in robust shape after also securing  a new lending facility through to the end of 2022.

Peel Hunt analyst Stuart Duncan added: “2021 will be about returning the loan book to growth and further progressing digital, where the opportunities are significant both in terms of growth and efficiency.”

Despite Provident's withdrawal, he expects Morses to remain disciplined in terms of balancing potential growth with customer quality. He notes that shares are trading on just over six times forecast earnings for 2023, the point at which the Dot Dot Loans and U Account digital division is expected to break even, and overall profits should be back at more normal levels.

For now, Duncan is sticking with the 75p target price, but he believes there's the potential for the share price to double based on a forecast 2023 earnings multiple of 10 times.

New chair buys Countryside Properties stake

The new chairman of Countryside Properties (LSE:CSP) has wasted no time buying £200,000 worth of shares in the FTSE 250-listed housebuilding and regeneration specialist.

John Martin, who is the former chief executive of building supplies business Ferguson (LSE:FERG), made his purchase at 510p in the wake of the company's interim results. The figures showed adjusted earnings rose 42% to £78.6 million, with the outlook buoyed by an order book worth £1.2 billion and a net reservation rate at the top end of its forecast range.

A provision of £25 million in case of work needed to meet fire safety regulations on 20 developments built prior to 2017 contributed to overall profits falling 40% to £24.7 million.

Martin took over this month from David Howell, who served Countryside for seven years, including five as chairman. The final part of his tenure saw pressure from activist shareholder Browning West after the Los Angeles-based hedge fund called for a break-up of the group.

Countryside, whose shares are close to where they were prior to the pandemic, has since started an internal reorganisation to facilitate a potential separation of the London and Home Counties-focused housebuilding arm. Browning West regards the Partnerships urban regeneration division as the company's “crown jewel”.

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