MTF: Share price in line with asset value

Glen Todd
Glen Todd
Dunedin's Motor Trade Finances continues to produce excellent returns during a year where market competitive pressure has been intense, chief executive Glen Todd said yesterday.

Releasing the company’s full-year profit, Mr Todd said the return on ordinary equity, using underlying profit after tax, was 12.2%. Although down from 13.9% in 2016, it was still a competitive return.

Ordinary shares had continued to trade strongly and the share price was now in line with the net tangible asset value  per share of $2.13.

Directors approved a final dividend of 7.37c per ordinary share. Total distribution for the year would be 13.37c per share, or $3.1million — slightly down from 2016, he said.

MTF reported a profit before commission and fair-value movement of $48.8million, up 7.5% on the previous corresponding period, a result of record sales growth in 2017. Commission paid to shareholder loan originators increased 10.5% to $37.6 million.

Total amounts paid to shareholder originators, including commission, fees and payment waiver, increased 29.3% to $69.9million as originators benefited from strong sales growth and a change in product offerings to include a non-recourse option.

Underlying profit after tax, which removed the volatility of unrealised fair-value movements and provided a more consistent measure of company performance, fell 7.6% to $7.3million from $7.9million in the previous corresponding period.

Sales throughout the year grew an "impressive" 35.7%, or $149.9million, to $567million.

"This large increase was the result of the completion of several initiatives, on top of a very buoyant year for vehicle sales."

The vehicle lending market generally remained competitive with record personal property security register (PPSR) registrations in 2017, Mr Todd said.

"The fact we have grown our market share to 17%, from 13.6%, in a very bullish market, reflects the success of our strategic positioning and strength in our distribution model."

Operating expenses, including bad debt, as a percentage under administration dropped to 2.6% as MTF continued to focus on robust cost management while  investing in areas to ensure the future success of the business.

MTF was a commercial enterprise with a co-operative spirit. Future success depended on continuing to deliver highly cost-effective finance and insurance services to originators so they could best service the needs of their customers, Mr Todd said.

The automotive and finance industries were changing, with the key elements of car-sharing, autonomous vehicles, new technologies and customer expectations combining for significant impact, he said.

Changing consumer behaviour, enabled by the internet and mobility, were expected to soon drive changes in financial services. Time-consuming paperwork would need to be replaced with  digitised and customised information.

To gain and retain customers, MTF must meet and exceed their needs and expectations, Mr Todd said.

"To achieve this, it is important the ‘customer-centric’ model is embedded within the culture of MTF."

In November last  year, MTF announced a partnership with Turners to provide a non-recourse offering. The partnership allowed all MTF shareholders to benefit from Turners’ ledger management experience, without exposure to the credit risk or MTF needing to fund a new team to manage the ledger.

The uptake had significantly exceeded the expectations of all parties through sales of more than $58million since roll-out late last year,  he said.

The product was introduced primarily to provide motor vehicle dealer originators an alternative way of supporting the company they owned and reflected the  market channel’s changing appetite for credit risk.

Mr Todd said the worldwide speculation surrounding disruption in the areas where MTF operated— the  automotive and financial markets — had intensified in the past year.

"What we do know is our markets are set for change and while the extent and pace of this change remains unclear, we know we must position ourselves to adapt early and not wait for change."

The board and management were confident MTF could look for new opportunities to support growth and profitability.

 

Non-recourse debt

A non-recourse debt is a type of loan secured by collateral, which is usually property. If the borrower defaults, the issuer can seize the collateral but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount.

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