ASX Small Cap Favourites: Mortgage Choice Limited
It’s been awhile since we last checked in with Mortgage Choice (MOC.ASX), but the stock caught our eye this week while looking through recent financial reports. Mortgage Choice is one of the oldest mortgage aggregators around and has been a market exposure for some time. It runs its business through a franchisor model. Over the years, we have questioned why a franchisee would join or stay with the group considering the stiff competition among mortgage aggregators.
Click here to enlarge the image. Chart from Bloomberg.
The argument has been that Mortgage Choice provides marketing and admin support to its lender and that justifies the large split in commissions it takes. We don’t buy that argument given the way the fintech industry is quickly adapting and the growth in social media marketing channels available to anybody. Nevertheless, MOC reported an 11% increase in profit for the year and grew its loan book by 4.4%.
The key number we look at is the difference between loan book growth and new settlements. The book grew by 4.4% but settlements were up 6.3%, which means there is leakage out of the group. This underpins a big problem in the industry – with large upfront commissions, brokers are incentivised to create as much churn as possible. The upfront commissions are amortized by the banks over the life of the loan, but it eats into their cash profit.
With talk of an ASIC review into the mortgage broking industry, we think MOC and other aggregators are in for some big changes. But we don’t have any other basis than what is published in the media. We continue to watch the mortgage broking industry very closely and MOC is one of the key names on our list.
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Chief Market Analyst
Peter Esho is a member of Invast’s Investment Committee and Chief Market Analyst at Invast Financial Services in Australia. The Invast’s Investment Committee constructs professionally constructed global thematic portfolios of Direct Market Access (DMA) CFDs over highly liquid global shares and ETFs through its new PortfolioInvestor platform. Since 1960, the Invast Group has grown to become one of the largest and most successful global brokerage firms, offering state-of-the-art trading technology and unparalleled service catering to all levels of traders.
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