Crawford Falconer takes up post as UK’s top trade negotiator

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Today’s edition features:

  • Morses Club (MCL.L)

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The FTSE-100 finished Friday’s session 0.86% lower at 7,323.98 whilst the FTSE AIM All-Share index was down 0.30% at 999.29. In continental Europe, the CAC-40 finished 0.64% lower at 5,114.15 whilst the DAX was down 0.31% at 12,165.19.

Wall Street
In New York on Friday night, Dow Jones ended the day 0.35% lower at 21,674.51, the S&P 500 fell 0.18% to 2,425.55 and the Nasdaq slipped 0.09% to stand at 6,216.53.

In Asian markets this morning, the Nikkei 225 was recently down 0.40% at 19,393.13 and the Hang Seng was 0.45% higher at 27,167.32.

In early trade today, WTI crude oil was slightly lower at $48.45 per barrel as was Brent at $52.59 per barrel.


Crawford Falconer takes up post as UK’s top trade negotiator
The man in charge of negotiating the UK’s trade deals once Brexit is finalised, starts his job this week. Crawford Falconer will take up the post of chief trade negotiation adviser at the Department for International Trade. Leaving the single market would mean the UK would have to establish new bilateral trade agreements, but cannot formally do so until after Brexit. However, one economist suggested Mr Falconer would already be “building bridges” with the European Commission. The UK faces a huge challenge in resetting its trading relationship with the EU and other countries when Brexit takes effect. Trade pacts that have been negotiated by the EU with the rest of the world will no longer apply to the UK, while Britain will also need to define new trading relationships with the EU itself. Membership of the EU has meant the UK does not have a large bank of trade negotiators with recent experience. A New Zealander, Mr Falconer has more than 25 years trade experience. He has represented New Zealand at the World Trade Organization (WTO) and held various posts in foreign and trade affairs in his home country.

Source: BBC News

Company news

Morses Club (MCL.L, 119.00p) – Buy
The UK’s second largest home collected credit (‘HCC’) lender, on Friday announced that the Group has secured the addition of one of the UK’s leading high street lenders to its existing loan facility (the ‘Facility’). Sitting alongside the existing funder, Shawbrook Bank, this has increased the overall revolving facility from £25m to £40m. The Facility has also been extended from its existing expiry date of March 2019 to August 2020. This is strategic in respect of supporting growth strategy of the business, providing the certainty of long-term funding and enabling Morses Club to continue its expansion plans, taking advantage of the current opportunities in the market place.

Our View: The quite dramatic tumble in Morses’ share price that took place mid-July to mid-August provides an important buying opportunity. Morses had been lumped together with others in the UK’s non-standard finance sector, all of which took a sharp hit as the dominant player, Provident Financial, warned that its Consumer Credit Division (‘CCD’) had been severely impacted by disruption from its migration to a new operating model. Shortly after this, early in August, Non-Standard Finance plc also provided its own half year results, from which several commentators suggested as NSF was successfully stealing market share from what they suggested were various sleepy peers, including Morses Club. The interpretation was wrong in both cases. Firstly, the hit on Provident Financial’s CCD division was largely self-inflicted. Its move from commissioned agents to contract staff, while also seeking to migrate away from the bottom rung of accounts, had been badly planned and effectively handed significant numbers of active agents to competitors. A real own goal! As far as Non-Standard Finance itself is concerned, the Company continues to make progress, although this comes at a cost; divisional impairment at the H1 stage rose to 37.5% (compared to 28.7% last year), with the loan book rising 16% despite customer numbers falling 10%. After central costs, NSF’s Loans-at-Home is still not generating a profit while quoting their number of new agents as rising by 229 following Provident’s loss something like 250. Morses, by comparison, is expected to add up to 600 new agents by its February 2018E year end and Friday’s announcement detailing its new larger revolving facility, demonstrates management’s confidence that activity levels set to deliver a step improvement. Yes, there will be some short-term costs for this expansion but, as Beaufort explained back in a note on 21st June, the anticipated squeeze in margins will be more than compensated in the P&L just one further year out. The Group’s trading update, expected on 31st August, is likely to outline management’s confidence in its strategy going forward. Far from being ‘sleepy’, Morses’ current push is expected to deliver an impressive leap in both revenues and earnings by year-end February 2020. Beaufort has re-set its P&L projections in response to Friday’s announcement, which now places the shares on 2019E and 2020E earnings multiples of 10.0x and 7.2x, together with yields of 6.1% and 8.3% respectively. Much too cheap considering an operation that this year should deliver 24% ROE on a P/BV of just 2.5x. Beaufort retains a price target for Morses Club of 155p/share along with its Buy rating.

Morses Club plc: Updated Beaufort P&L Projections


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Compiled by:
Barry Gibb, Kazunaga Senga, Sheldon Modeland, Charles Long & Ben Maitland
(t) +44 (0) 207 382 8384

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