Mortgage Choice earnings flat on falling share

In a bid get its loan settlements back to system growth, broker franchise group Mortgage Choice has introduced an incentive payment scheme to encourage its franchisees to hire more loan writers.

Mortgage Choice is struggling to keep pace with the market. Loan settlements during the six months to December were up nine per cent on the previous corresponding period, compared with the industry average of 14 per cent over the same period.

Its loan book grew by 4.5 per cent to A$48.4 billion over the year to December, compared with the industry average of seven per cent.

The company also reported below-system performance in loan settlements and loan book growth when it presented its results for the 12 months to June last year.

Net profit was down 9.4 per cent to $10 million. Adjusting for discontinued operations (Mortgage Choice sold its aggregator division Loan Kit last year) and the company's preferred accounting treatment of its trail commission income, cash profit from continuing operations was unchanged at $9 million.

It paid $298,000 in loan writer recruitment incentives during the half and the incentive scheme will continue for the rest of the year.

On the bright side, commission rates rose during the half. The average upfront commission rate paid by lenders on its panel was 64.7 basis points, compared with 63.3 bps in the previous corresponding period.

The average trail rate went up from 17.5 bps to 17.8 bps over the same period.

Another positive for the company is that it has diversified its revenue base through its move into financial planning. Revenue from sources other than mortgage broking rose from 8.9 per cent in the six months to December 2013 to 11.5 per cent in the latest half.

Back in 2009 only 1.4 per cent of revenue came from sources other than mortgage broking.

Mortgage Choice Financial Planning has 40 advisers on the books and plans to have 50 by the end of the year.

The financial planning business lost $342,000 during the half. The company expects the business to break even next year.

The comparison website business Help Me Choose also lost money.

Without any earnings contribution from its start-up businesses and the loss of share in the mortgage business, Mortgage Choice's earnings have hardly moved over the past five years.