The last annual results marked the eighth consecutive year of 20% profit growth for the Mortgage Advice Bureau (LON:MAB1).
The achievement is all the more remarkable given the market backdrop, which has been far from easy.
It has survived and thrived through the financial crisis and one of the worst recessions in living memory, while latterly uncertainty has been caused by Brexit, a root and branch overhaul of the buy to let market and a snap election.
Currently, transactions in the £250bn-a-year mortgage industry are flat with property inflation providing modest growth.
“There’s no point in stressing about the market,” says chief executive Peter Brodnicki, who founded what is now the UK’s largest mortgage intermediary business more than 17 years ago.
So how has MAB achieved the very impressive performance outlined above?
The short answer is growth has tracked the expansion of its network of advisors, which at the last update totalled over 1,000 (though it also works with builders and estate agents).
In the six months leading up to September’s interim results it brought around 70 new mortgage advisers under its umbrella, and historically it has expanded at an annual rate of around at least 15% a year.
A little like the franchise system, MAB’s network members gain leverage from the economies of scale of being part of a large and well-established operation. Branding is also key, as is access to market-leading mortgage technology.
That last point is an important one which we’ll come back to – both for the MAB network and for the company itself.
The last results showed the company generates revenues from three major sources – mortgage procurement fees, protection and general insurance commissions and client fee payments.
The fastest-growing part of the business currently is protection, which in the first six months of the financial year expanded by almost a quarter. It will continue to be a “key growth area”, according to CEO Brodnicki.
Plan to more than double market share
Looking ahead, the medium-term plan is to expand the company’s share of the mortgage intermediary market to 10% from 4.4% currently.
Aiding this process is the technological change taking place within the industry and at the forefront of which is MAB.
Brodnicki said the company has invested heavily in state-of-the-art systems fit for a world that is increasingly becoming automated.
“Technology will enhance face-to-face and telephone advice offerings significantly, but it also opens the door for some robo-advice options in the future, which will form part of the choices our customers will receive,” the CEO explains.
Technology-led, yes. But still a multi-channel operator
It should be stated at this stage that MAB is and will remain a multi-channel strategy letting the customer decide how they wish to transact.
So its network isn’t eschewing face-to-face client meetings and calls in favour of a technology-driven solution for in doing so it would be ignoring a long tail of business.
Practically, what does the digitisation of the mortgage intermediary market mean?
Early adopters such as MAB should flourish, says Brodnicki as the wheels of the industry turn in its favour.
But for the traditionalists, and there are a lot of them out there, the writing is already on the wall.
Many of the smaller operators could flounder and fail
“If you are only starting to have the technology conversation around the boardroom table now, forget about it,” Brodnicki says.
The systems now in place and being developed at MAB should allow its network to be faster and more efficient, cutting costs.
Ultimately MAB’s approach will allow partner firms to be more productive.
Brodnicki sees a point where the uplift in productivity could have a more pronounced impact on the profit and loss account than expansion of its network of mortgage advisers.
It means investment made recently will really only start paying dividends several years down the line when the “technology dots really start to join”, the MAB boss said. So the benefits of this spending are yet to really accrue.
Asset-light and cash generative
It is perhaps worth bearing this in mind when you look at the current valuation of the business, which sits on a fairly racy price-to-earnings multiple.
It is also worth noting the company is an asset light, cash generative business that last year converted 90% of those funds into dividends.
The payout has almost doubled in the three years since MAB’s IPO, meaning investors have received a yield of around 4%.
And while past performance is never a reliable guide to future trajectory of a business, it is still worth reminding ourselves that this is a company that, irrespective of the state of the housing market, has grown at an impressive rate over the last eight years.
“The message is we are prudent, consistent; but we have ambitious plans and are working on increasing our market share during a period of significant [technological] disruption,” said Brodnicki.