Tablets and debit cards...how Morses is taking doorstep lending upmarket
DOORSTEP lenders are a controversial bunch, often criticised for charging too much and harassing late-payers. Their reputation has been further tarnished by high-profile revelations about payday lenders, offering fast bucks online but forcing borrowers to pay extortionate amounts of interest in return.
The payday market is much more highly regulated these days, but its continued existence highlights a real need. About one in five adults in this country – 10million people – cannot borrow from mainstream banks or building societies. And of those 10million, more than 1.5million cannot access any form of online credit – so they have little choice but to turn to doorstep lenders if they are short of cash.
Unscrupulous loan sharks abound to take advantage of these excluded members of society, but Morses
Club aims to be different, and certainly its own story is a positive one. The shares have done well since Morses was floated on London’s junior Aim market in 2016 and, at 173p, there is plenty more mileage in the stock – and a decent dividend stream to boot.
Morses is run by Paul Smith, a competent, clever and driven 52year-old, who took the helm in 2015, with a mission to modernise the business and expand into new areas.
At the time, Morses Club was entirely focused on the home credit market, using self-employed agents to lend and collect cash from customers, primarily women in their late-40s whose annual income rarely exceeded £15,000.
The company still generates most of its turnover from these customers – numbering about 180,000 up and down the country – but, as Smith promised, Morses Club is evolving.
Agents have moved from paperbased files to tablets, such as iPads, which makes form-filling faster and more reliable for both lender and borrower. Morses has also launched a Visa debit card for customers, many of whom have never had access to this type of card.
Their loans are loaded on to the card and it can be used wherever Visa debit cards are accepted.
To date, only 20 per cent of customers have taken up this offer, but growth is accelerating, as awareness and acceptance increase.
At the same time, Morses has moved into the online lending market. The group spent a couple of years researching the sector, building up the right technology and creating a brand, Dot Dot Loans. Then in February, Smith pounced, acquiring most of Leeds-based Curo Transatlantic, after it fell into administration.
The deal has given Morses access to 50,000 online customers, as well as trained employees and useful infrastructure. Importantly too, Smith has been able to pick and choose which parts of the Curo business he wants, so the payday lending will be dropped, along with the WageDayAdvance brand.
Over time, Smith is keen to build up Morses’ online business, and time is on his side. Many payday lenders are struggling, facing fines and compensation charges for poor behaviour in the past. Smith can pick up these firms on the cheap and cherry-pick their customers.
The ambitious chief executive does not intend to stop there. Later this year, Morses Club will launch a specialised online bank, offering credit facilities, such as overdrafts, to people who either cannot borrow from mainstream banks or continuously fall foul of expensive, unauthorised overdraft fees.
The potential for this service is considerable, including among customers who have graduated from doorstep lending but still trust the Morses brand, as well as young, technically-savvy consumers, such as students.
The mooted takeover of home loan specialist Provident Financial by rival Non-Standard Finance could provide further opportunities. Both firms would almost certainly need to sell off certain subsidiaries if the deeply acrimonious deal goes through.
Smith hopes to double his customer numbers over the next few years, to about 250,000 home credit borrowers and the same again using the new online services.
Growth will not come at the expense of profitability, however. Morses has a robust track record and is determined to maintain it.
Results for the year to February 23, 2019 are due next month and brokers predict a 15 per cent rise in profit to £22million, with an 11 per cent hike in the dividend to 7.8p, putting the shares on a healthy 4.5 per cent yield. A profit of £23.5million is forecast for this year, with a dividend of 8.3p, and further growth is expected after that.
MIDAS VERDICT: Morses Club is a strong, well-run business with big ambitions and the means to achieve them. In time too, Smith is keen to move from Aim to the main market, which would allow more large institutions to invest in the business. At 173p, the shares should prove rewarding.
Traded on: Aim Ticker: MCL Contact: morsesclubplc.com or 0330 045 0719