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Mortgage Choice expected to grow despite ‘challenges’: Morningstar

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Reporter 4 minute read

Mortgage Choice is expected to increase its franchise network despite facing challenges in recent years that have inhibited growth in its market share, according to Morningstar.

Investment research group Morningstar Australia has issued a research snapshot report, authored by its head of financials, David Ellis.

According to Mr Ellis, the brokerage has faced “tough competition” given “low entry barriers” to the industry.

Indeed, new research from Deloitte Access Economics has revealed that the number of brokers in the mortgage market increased by 22.4 per cent to 16,940 in the two years to September 2017.

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Mr Ellis also observed that Mortgage Choice has been unable to increase its market share over recent years, despite a rise in demand for brokers.

In its full-year 2017 (FY17) financial results, the brokerage reported a market share of 3.7 per cent, down slightly from 3.74 per cent in FY16.

“The steady increase in the use of brokers in Australia is an industry tailwind, though Mortgage Choice has been unable to increase its share of mortgages in recent years,” Mr Ellis said.

However, the banking analyst said that he expects the brokerage to strengthen its market position through the expansion of its franchise network and a continued emphasis on diversification.

“We expect further increases in the firm’s franchise footprint to drive earnings growth,” the analyst continued.

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“Expansion of the financial planning [offering] diversifies the revenue base, improving financial performance.”

Mortgage Choice recently introduced a new franchisee remuneration model, which it claimed is designed to provide its broker franchisees with higher remuneration and reduced income volatility.

However, in a briefing to investors, Mortgage Choice CEO Susan Mitchell noted that the new remuneration model is expected to reduce its IFRS net profit after tax (NPAT) for the 2018 financial year (FY18) by approximately $30 million, which the CEO said was largely included in the 2018 result.

The CEO also stated that the brokerage’s cash NPAT for FY18 is expected to fall between $23.1 million and $23.4 million and would drop to $16.5 million in FY19.

Further, in his report, Morningstar analyst David Ellis claimed that the brokerage’s pursuit of growth could be hindered by any changes in the market.

“Future performance depends on lenders continuing to rely on brokers to distribute mortgages and maintaining commission arrangements,” the banking analyst said.

“A robust property market is also essential, as this leads to ongoing demand for new mortgages.”

[Related: Remuneration reform to cost Mortgage Choice $30m]

Mortgage Choice expected to grow despite ‘challenges’: Morningstar
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