ASX Small Cap Favourites: Yellow Brick Road Holdings Limited
We wrote a fortnight ago about Mortgage Choice and explained that we are watching the mortgage broking business model very closely. This week, we spend some time looking over Yellow Brick Road (YBR) recent results and balance sheet. A few things stood out to us:
– The balance sheet has a very large amount of trail commissions on the asset side of the ledger. This is probably an expectation of what trail commissions are likely to be paid to the group in the coming years, based on assumptions around the loan contracts with lenders and average life. This needs to be watched closely.
– The net equity value on balance sheet is around $70m but the market cap, as of the time of writing, is sitting at around $50m.
– Around $9m of a total $13m facility is drawn, lender being the CBA
The stock is trading near an all time low, clearly the market has lost trust. The biggest disappointment has been the huge investment in advertising and marketing which YBR has made over the past few years. This has clearly eaten its way through the balance sheet and management is now trying to make sense of it all.
As we wrote last week, the mortgage broking industry is going through a period of consolidation and huge changes. YBR has been one of the key consolidators and attempted disruptors. But the balance sheet doesn’t lie – it’s all open and transparent. The cashflow statement shows what’s really going on between operating funds coming in and going out. The level of advertising spend is not sustainable and will need to stop. The big question is – what happens next.
Once again, the YBR experience shows that “throwing money” at the problem doesn’t always work, especially when it comes to selling financial services and home-loans originated by the banks.
Invast is very well placed to bring you some huge opportunities in the coming months. Execution costs for ASX stocks are 0.06% (6 basis points) above minimum charge, which means for a trade with a notional exposure of AUD 10,000, the applicable commission is only AUD 6.00.
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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.
Invast Financial Services Pty Ltd (ABN 48 162 400 035) is regulated by the Australian Securities and Investments Commission and holds an AFS Licence 438283 which authorises it to carry on a financial services business in Australia.