Ann: 4Q24 Trading Update - Growth and strong loan performance, page-109

Something sustainable? I think NOT.

Hi Dan

I have over 2m MME and I’mdelighted it has turned around (per 1/8 update). However, profit is stillmodest (see below) and growth will be limited by its cash resources. I cautionholders that I can’t see a justification for MME going above 15c in the next 12months, in the absence of a takeover, although I hope I’m wrong. I will holdbut won’t buy over 12c.

Pleasesee my reply to your post on 9/8 23:22 Post #: 75149218 Edited extract“It’s odd that MME would disclose net assets when they have not disclosed 2H24profit. That was probably an accident, because one can work backwards to derive profit, as you have done. If that $190m is correct it would suggest that 2H24 profit was $17m, yet that seems highly unlikely given the net profits of the past three half year periods. My best guess is that the underlying profit in 2H was very similar to 1H (say about $7m to $8m) to which they added $9m for what I suspect is a partial release of balance sheet credit loss provision made in previous periods, hence about $16/17m total profit for 2H.

“This explanation does makesense, but- if it is true- I wouldcaution investors against thinking that this level of profit is sustainable. MME maymake further releases of provisions in future periods, but every further releasetowards zero provision gets progressively harder to do. I would prefer to excludesuch macro- economic adjustments (both up and down) from underlying profit. Theyare somewhat artificially determined by accounting standards I accept that further releases may happen, but it is prudent not to treat them as part of maintainable earnings”

My estimate of maintainableearnings is $7m per half= $14m pa. NB although the update on 1/8 described the profitsas “after tax” there is no tax expense, because MME has large tax losses whichare not valued on balance sheet. I expect MME will not pay tax for at least 2 years.,at this rate. My $14m pa estimate gives eps of 1.75c, which would be 1.2c if fully tax effected. Given the extremely high gearing of the finance sector, hence high risk, I would be reluctant to apply a PE of more than 10x after tax earnings, thus 12c.

My est. after tax earnings/ equityFY24 = $14m x 0.7/$190= 5.2% ROE, which is inadequate. NAV proforma is $190m (per MME): tangible assets proforma should be about $90m. My est. of ROE on tangible equity of $90m is about 11%, which is OK but not great. That is the ROE that would be earned if the entire price paid ($90m) for goodwill and other intangibles of SocOne were written off. That’s why I posted before that I wouldn’t be surprised if they wrote off some of this: if they don’t, it will be very interesting to see if MME’s stated assumptions in the 2024 AR to justify keeping those values are credible. I don’t think that the assumptions given in AR 23 were, and the FY24 performance hasn’t changed that opinion..

Pleasesee also my posts below

11/8 MME cash is tight 11/08/24 19:11 Post #: 75160229and

15/8MME sensible actions but I'm still concerned about tight cash. 15/08/24 17:59 Post #: 75225860