Mortgage Advice Bureau (Holdings) Plc (LON:MAB1) is the topic of conversation when we caught up with Research Director at Zeus Capital Robin Savage. Robin talks about sensitivity to conditions in the residential housing market, how MAB is able to grow its market share and where he thinks think MAB shares go from here.
Robin also provided the following note:
What’s new?
Recent market updates paint a positive picture of the UK housing market:
CML market update on 20 October suggests 2016 will show a 7% growth in mortgage & remortgage volumes and points to improving sentiment.
RICS survey suggests sales sentiment good and improving.
Bank of England’s Credit Conditions Survey reports the supply of credit is expected to remain unchanged & demand to recover in 4Q16
On 10 November, the RICS October Survey will provide further evidence of sentiment in the UK residential property market.
Zeus’ view
Clear evidence of Year-on-Year growth in the UK mortgage market can be seen in the RICS surveys and in Bank of England reports.
The Bank of England, Mortgage Lender and Administrators Statistics (MLAR) shows mortgage repayments are increasing by over 6% pa. In 1H16 UK borrowers repaid £97m of mortgage debt (18% above 1H15). This reduction in mortgage loan books is driving the UK banking sector to increase gross mortgage and remortgage lending.
Our confidence in Mortgage Advice Bureau (MAB), its forecasts and equity market valuation is based on solid economic fundamentals:
(1) the UK banks need to originate over £200bn of new loans pa
(2) MAB’s growth is based on growing market share
(3) MAB’s clear business model which delivers returns to its shareholders.
Valuation
At 300p MAB shares are trading on a 6.0% 2016 dividend yield with prospects of 17% growth to 7.0% in 2017. In our opinion 400p is a credible September 2017 target price, as MAB would then be trading on a 2017 PER of 17.0x, a PEG of 0.9x and a 5.3% dividend yield with prospects of a 6.3% dividend yield in 2018. If MAB shares reach 400p over the next year, the Total Shareholder Return would be 39%.
