Value investors take on RHG board

Key stakeholders from the newsletter The Intelligent Investor will attempt to join the board of RHG, the former Rams Home Loans that has its mortgage book in run off.

Stephen Johnson and Gregory Hoffman propose to join the board at a special meeting requisitioned by five per cent of RHG investors. They also propose to drop David Coe (formerly of Allco) from the board.

In their statement sent to RHG and published via the ASX the pair complain of a lack of clarity from the board around strategy. RHG has talked in the past of returning capital, which is what Johnson and Hoffman favour, but have also talked of resuming mortgage funding.

RHG are earning profits from a declining mortgage book of $7.4 billion as of June 2009. And while recent profits look attractive, at $120 million for the year to June 2009, they are declining in line with the book, and the margins earned from each loan may also narrow as the banks that provide most of RHG's funding lift the interest charged.

In full financial statements published through the ASX RHG wrote that "a high level of uncertainty remains in the current market, which will likely result in the group selling further mortgages at par in repayment of warehouse facility balances."

The firm also warned, once again, of the risk of a default on its warehouse facilities if they are not renewed and the mortgages are not sold.

Readers of the Intelligent Investor own more than 16 per cent of RHG while Australian Leaders Fund holds eight per cent.