Mortgage choice had a pretty ordinary 1HFy20 result. Statutory IFRS net profit after tax was down from $6.4m to just $4
However the measure that investors should focus on (because this represents the 'cash profit' hence real business profit) increased very marginally from $6m to $6.1 (just a rounding error really!!)
Never the less, because of overall market weakness and the ordinary result, the share price has crashed from $1.40 to around 95c. In my opinion this makes MOC an attractive accumulate around current prices.
MOC dividend is 6c, but EPS is around 11.5c. So I believe that so long as the underlying housing market remains at a minimum stable, then this dividend is secure given its around 55% payout ratio. I also believe that in the future this payout ratio should increase, in the past mortgage choice paid out around 90% of its earnings as dividends. I believe that given the upheaval with MOC over the last couple of years, and with management restructuring the business in favour of better franchisee payout ratio's, management is keeping the payout lower so they can build a bit of a cash kitty bank.
The other good part about MOC is a) no debt b) no subject to credit market spread risk (ie they do not borrow and lend money, so there is no credit market risk)
The underlying business should grow from its rebased earnings so long as the residential market grows (which for this year at least, residential property should do well). I don't expect earnings to go back to what they were two years ago because of the rebalanced franchise model. However earnings can increase from the current 11.5c.
At current prices MOC has a sustainable fully franked dividend yield of 6.3%, and is still cum a dividend of 3c. I have used the recent market weakness to accumulate additional positions.
MOC Price at posting:
97.0¢ Sentiment: None Disclosure: Held
