Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
BlueAir scheduling flights now and a new CEO for the airport. While positive the focus on the airport when the funding is ringfenced and locked in for another 6 years is too much. The energy business, with its inflation linked long term contracts must be worth £200m+ and should provide funders all the comfort they need to roll the RCF. In the meantime it’s performing extremely well in a growth market. When the funding is announced I suspect that the shares will more than double.
https://twitter.com/southendairport/status/1554889840339984385?s=21&t=zTwwn6r94XSCu6mZSyF9Vw
Must be good for 2023 schedules though. I agree-has to be a big positive for the equity story. Shame they hadn’t rolled the RCF with the results as that seems to be one critical factor holding the stock back.
An amazing humbling experience how such a small amount of claims can potentially infect an entire company . Obviously not helped by the idiotic behaviour of the CEO who lost it on the basis of a Russia invasion. Amigo is different. But the sentiment from the FCA is helpful. It’s weird that an insolvent current & future brand has more market cap than a solvent brand such as Morses.
The Energy Business must be worth £200m plus and performing excellently at the moment given what looks to have happened to gate fees. The move away from Russian gas is accelerating the shift to renewables of which Stobart Energy will be caught up in. Understand there is debt, but vast majority now ringfenced in LSA and the cash generation of Energy should easily be able to support the rest with upside if any exit can be found for their lease liability. Seems the wrong price to me….
The claims picture is clearly complex and highly unpredictable. The case you show is interesting but so are the cases that are not upheld ( https://www.financial-ombudsman.org.uk/decision/DRN-3193972.pdf. And. https://www.financial-ombudsman.org.uk/decision/DRN-3248872.pdf and. https://www.financial-ombudsman.org.uk/decision/DRN-3257627.pdf ) being three examples.
It’s clear that certain patterns of behaviour and evidence are needed to demonstrate irresponsible lending and it’s therefore not just enough to have had a loan or a number of loans from Morses.
Given CMC income is now capped, costs are increasing and the cases are individually complex it’s as plausible to think that the claims pattern will reset to a more normal behaviour as it is to think that the behaviour will spiral out of control.
The trading update demonstrates that ex this issue the business is worth multiples of the current market cap. Indeed the fundamental concerns around the cost of living crisis have been extremely well navigated and with digital now profitable the underlying earnings leverage should start to ratchet through.
It’s clearly going to take some time, but at this price the market is putting an extremely high probability of insolvency, which as discussed above is not based on anything other than Morses being in the High Cost Credit market and thus must be irresponsible and guilty.
Was 4 March last year
That was a decent seller from the middle of the week. At one point I could generate an actionable quote to buy £170k of stock through HL at a tight spread, which I’ve never seen before. Normally you struggle to buy in sizes >£10-20k without blowing the spread out. By Friday afternoon it was higher than £25k but more normal suggesting most had been placed by the market maker. I stick with the view that operationally and fundamentally the business should be on track. Inflation is a double edged sword. Tighter cash flow increases demand for short term loans but clearly crimps affordability which limits supply, in this now tightly regulated market. The jobs market is hot, with vacancies at record highs, which helps cash flow as second jobs are easier to come by. The business model and product economics are set up for this environment. It’s why companies like Morses actually exist. Claims remain the key unquantifiable threat but all the public data and customer reviews suggest that Morses is well positioned in this regard. The recent RCF refi in December suggests it certainly wasn’t an issue then, I think. Looking at the complaints on Trustpilot suggest most (though obviously not all) are because Morses won’t lend or relend. This relend is a new regulatory focus and must be super frustrating for customers when they behave well and is something that they clearly do not understand. Ironically the FCA thinks it’s protecting people, but reading the obvious frustration it’s having the opposite effect. Importantly this is an example of Morses upholding the rules, not breaking them. Which I find comforting. This is a very different company to Amigo. It is very well capitalised, well funded and appears to be well run, supporting customers. The secular growth story for this business is well understood. Once we get through this period of uncertainty the cash and earnings dynamics should show out. I’m a big private shareholder now and am in it for the long term. Good luck to all those serious investors who are trying to find strong fundamental investments in a difficult market.
Cane: noted. It’s a horrible chart and the cost of living backdrop is clearly not good. Everyone can see that. The market is a funny place and very hard to gauge what’s in the price or not. At 42p, with a dividend of 3p people must be expecting a more difficult outlook statement. As long as it’s not regulatory problems then the business model should be able to cope with all of that. Back in the day companies like Morses were seen as recession proof. Today wage inflation is rampant. Job vacancies are at all time highs and the government is paying some of your gas bill. I think it will be ok….. let’s see.
I hear you on the insider sale. It’s concerning. However these are normal people we are talking about that get paid party in shares. I’m a director of a firm that is doing very well, getting paid in stock but still need the cash flow of a sale. I’m sure she is gutted to have to sell down here , but maybe she is buying a house. So congratulations. Who knows. What I do know is that if there was really bad news to put out she wouldn’t be able to sell.
Good to see an ease to selling volume again and some buyers stepping in. Chart looks to be bottoming, news on support for low income families growing. RSI at extreme weekly levels. I’m watching rate sensitive stocks as the ultimate cue to start switching even more of my portfolio into morses given sentiment. Morses seems to be geared towards that trade inversely, which makes no real economic sense, but can understand why people think that it might do. Sticking with it. Looking to add more.
Volume a lot lower today. Amigo off the lows. News on help for low income energy support close. Nothing material or the company would have had to release a statement. Board changes only announced mid December and everything was fine and dandy then. Last year they announced a pre-close in early march, so it might be radio silence until then. Price action does make you question, but liquidity is poor and none of the well informed major shareholders are budging or it would have been disclosed. I’m sitting tight and waiting to average down (again) when we get closer to march or the seller drys up.
You do wonder who is in the stock that has any left to sell. Slot hand back this week is the catalyst for potential new relationships to be announced. Meanwhile the Energy business must be doing well in this environment.
Good shout cane, also dabbled in Amigo in decent size last year and got out with a smile on my face. Even before the tribulations of the reg situation I’d figured out they needed more equity to support the likely covenants of the RCF in Amigo 2. This funding position is critical and as discussed in a previous post, is clearly very different for Morses.
Sub 60! Fill yer boots. If yer boots are full, back up the truck. I have, unfortunately my truck now full too! Space for more in the boot if it keeps falling for no reason. If the banks keep rising, I’ll have more powder.
This last 18 months has presented some amazing opportunities. I’m a financial geek, have been for 25 yrs. So VM at 60p, Lloyds at 25p, NatWest at 90p. Happy days. It’s been a great pandemic in that sense. I could go on.
At 1x geared I’m betting morses survives and prospers. Still got some banks , but none offer the same upside as this little company. Timing is just different. Yes reg risk. But the regulator needs good operating business like Morses.
Reg still remains the Achilles heal, but if adapted (which I think they have) this company is going to prosper cyclically, secularly and is probably one of the best earnings recovery stories in the market. Certainly the financial space that I analyse.
Agreed on the world tour v frustrating ++. Reason I didn’t sell was I felt it was worth 150p+. Still do. Lots of sensible analysts think 10p+ earnings next financial year. More the year after. I think totally reasonable if the claims management companies doesn’t stop it then the math gets you there. At this stage comfort on claims is key as the rest is mechanical - again the funding message here is key, I think. Management very confident on the longer term. I agree given macro, micro and everything else. Reg is key. With 98% satisfaction they seem well covered here.
If it’s Andy Thomson then he did have 2.5% of the stock at last annual report and retired due to ill health at the end of December. Would make a lot of sense coz I’ve been testing the offer in decent size and been surprised how liquid the stock has been consistently, interesting. There’s sure been a lot of stock sold recently.
Re the Amigo and Provident complaints read - this is clearly the Achilles heal in the sector. I gained comfort from a few things;
1) maternity lower complaints in the teeth of the CMC heat
2) decent customer reviews and management attitude to customer satisfaction/relend/developments in reg- it’s been a growing theme for a long time they appear to have been on top of
3) CMCs have been killed in Amigo and Provident, which reminds them that the high cost credit gig is not PPI (ie the sector, unlike banks, can’t afford it.
All of these make me more comfortable on claims, but I agree an update on this at results or pre-close (if provided) is very important given current sentiment.
The other absolutely key attribute though is leverage. Morses as BAU is currently funding its loan book pretty much 1:1 with equity (which is unheard of in the financial sector and reinforces the resilience of the firm) and the growth provided by the £37m RCF has only just been extended - this is important as the lenders get inside information that we clearly do not. If claims were an issue of material nature I’m guessing they wouldn’t be rolling funding well in advance of when the facility is due. Very, very different to AMGO, Prov and NSF. Stick with it.
Let’s hope whoever it is has now cleared out over the last two days selling. Morses closed at the bottom of a very big trend line that would be v unhealthy if it breaks. If you park amigo, there has been no fundamental shift in the story (feels like someone burned in AMGO ditching their high cost credit sector exposure regardless and unfortunately they seem to own Morses and with NSF down 10% too that one as well-Both too small to short) so I’m riding this one out, though fingers are now cut to shreds trying to catch this one on the way down.
AMGO is interesting. It looks like the market has gone full circle on that one. 9-12 months ago, Amigo, Provident and NSF’s demise was good for better quality operators like Morses – now it’s seen as bad. While I can see that Amigo’s problems are clearly not good for sentiment, the same woes have not exactly just popped up out of the blue, given the company has been technically insolvent for a while (the Directors have been telling you that). I stick with the view that with a strong capital, funding and operating model the strong recovery in Morse’s profits will become evident in the new financial year as digital moves through break-even, HCC remains resilient, and credit issued continues to recover. Demand for consumer credit fell sharply across the UK/world during the pandemic and it is now only just recovering at a UK economy level, albeit pockets of demand are returning more strongly, faster in the areas of the economy most impacted by the pandemic (hence the read from HAT was interesting). For companies that can navigate the higher regulatory bar now set to service this part of the market the growth outlook is very strong. Earnings and dividends will follow quickly once the tipping point on the IFRS9 drag has been reached. The good thing about accounting is that it is predictable once you understand how it works.
H&T, the high cost credit pawn broker, has released a trading statement this morning highlighting a stronger than expected recovery in lending during November and December, with December at record levels. While IFRS9 means profit expectations remain in the range of expectations, the set up for next year looks strong. Sound familiar?
Continues to lend support that the Morses investment case remains intact and the set up as we move into the new financial year is very strong.
I know. It’s frustrating and makes you question what you are missing. I’m constantly challenging myself on this, as Morses has become a big part of my portfolio. While sentiment was damaged by Morses cautious outlook at the last results, this is very out of date now and I think the lingering poor price action is thematic rather than company specific.
Early January is always a period when fund managers make changes to their portfolio as they are judged (paid) on their annual performance. Feels like Morses has been on the wrong side of that as there has been a lot of liquidity to buy at the offer price, which is vey unusual, more so in this name. I’ve tested that alot in the last week as I’m taking advantage of the ability to top up in decent size. If we are correct on the investment case this is a three bagger, so very happy others are willing to sell me their stock down here.
As soon as people realise that Digital is profit making and a growth engine then the economics of this company transform along with the earnings and dividend capacity.
You just don’t account for costs that way. They are expensed as incurred.
Re your investment case I’d add a few bigger picture items and one tactical theme:
- while the reduction in competition undoubtedly helps Morses, the pandemic has increased the addressable market of customers who may need access to Morses services. To tap the market sustainably you need to be a responsible lender. This means the pool of potential credit for Morses has structurally increased.
- being able to demonstrate responsibility when lending was becoming a critical requirement even before the CMCs helped to put the spotlight on poor industry practices. Morses look to have been ahead of the game here and are clearly evolving to remain so. Managements reference to 98% customer satisfaction is critical evidence as are the individual customer reviews, which in the vast majority remain positive; with problems stemming more around failing to relend a more common feature of grievance. Comfort on regulation is critical in this regard.
- the experience of the CMCs and haircuts they’ll have taken on Amigo and Provident claims should remind them that the equity pool to go after in this industry is not big enough to support their speculative activity. This should ease this negative claims backdrop, I think
- tactically you are at peak fear right now. Higher rates, energy and national insurance is clearly concerning for household cash flows. Politically this feels increasingly toxic and thus I’m expecting some help for low income families, which will hopefully ease concerns around the potential impact on Morses credit quality. This has been a long time coming too, so Morses will have had time to reflect in affordability at underwrite for a lot of those loans of long enough duration to be impacted. Bottom line it won’t be as bad as feared.
Good luck with your investing. We agree that Morses is a great investment in a market where cheap, structurally well positioned companies/stocks are hard to find.