Mortgage Choice to be removed from ASX 300 list

In a statement to The Adviser, the ASX noted that Mortgage Choice’s removal was due to the company "no longer meeting criteria for inclusion”.

According to the ASX’s selection criteria, a company’s average daily market capitalisation for the previous six months must be considered “institutionally investable” and “meet a minimum benchmark size”, while liquidity must also be “adequate”, with its public float (shares not owned by company founders, directors, government agencies etc) also required to meet a minimum standard.

The move follows on from Mortgage Choice's full-year 2018 (FY18) financial results, which reported a 7 per cent fall in broker settlements. This equated to settlements being down by $800 million, from $12.3 billion in FY17 to $11.5 billion in FY18.

Further, Mortgage Choice’s statutory net profit after tax (NPAT) dropped by 80.9 per cent, from $22.2 million in FY17 to $4.2 million in FY18.

The brokerage partly attributed the fall to a $7.1 million “positive adjustment” for “changes in run-off and other adjustments”, and non-cash adjustment of $28.5 million due to the introduction of the group’s new broker remuneration model.

When asked about Mortgage Choice’s removal from the ASX 300 index, CEO Susan Mitchell told The Adviser: “Rebalancing of the ASX 300 index occurs every six months and is determined by a number of factors.
 
“The new remuneration model and changes we have implemented have provided a platform for sustainable growth. It will allow Mortgage Choice brokers to invest in their businesses while attracting new, high-quality brokers to the network.
 
“We are confident that this will see us return to growing settlement volumes and market share over the medium term.”

However, reflecting on the brokerage’s FY18 results, research agency Morningstar noted: “Mortgage Choice is at the crossroads and has reset the business model to cope with a rapidly changing operating environment.”

The investment research agency claimed that there are “major risks to returns in the longer term”.

“Future profitability relies heavily on the ongoing strength of the Australian housing market, and the preparedness of the four major banks to continue using mortgage brokers to distribute mortgages and continue paying current levels of upfront commissions.”

However, Morningstar reiterated that “despite the challenges”, which include a change in CEO and a sharp drop in the group’s share price, Mortgage Choice is “not in turmoil”.

Morningstar noted that the brokerage “continues to deliver strong profitability, high returns on equity and an attractive dividend yield”, and that it has forecast a FY19 NPAT of $16.6 million.

[Related: Mortgage Choice at the ‘crossroads’ but ‘not in turmoil’: Morningstar]