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Will this Yellow Brick Road lead to profits?

Mr Mark Bouris — perhaps best known as the face of the television show “The Apprentice Australia” — can also be credited as the founder of mortgage lender Wizard Home Loans. Mr Bouris famously sold Wizard in 1996 for a reported $500 million to GE Money; 15 years later he was back in the headlines, launching wealth management company Yellow Brick Road (ASX: YBR).

Yellow Brick Road provides services ranging from financial advice through to home loans, estate planning and insurance broking. For the financial year (FY) just ended, revenues were up 68% reflecting the addition of new branches and increased activity within established branch offices.

Branch numbers have grown from 72 in FY 2011 to 168 in FY 2013. Correspondingly, over the past three years, revenues have increased from $11.3 million to $14.8 million to $24.9 million. (Note that Yellow Brick Road’s revenues include the value of future trail commissions.)

There are plenty of positives contained within the FY 2013 results that bode well for the future outlook for the company. These included:

  • Productivity levels are increasing
  • Economies of scale are emerging
  • A net cash balance of $12.8 million
  • A mortgage loan book which has grown from $410 million to $856 million to $1.78 billion over the past three years
  • And total funds under management which have grown from $118 million to $196 million to $275 million over the past three years

Due to the company being in the roll-out phase of its branch network, it is still reporting bottom line losses. Marketing investment during the 12 months ending June doubled to nearly $4 million but pleasingly other operating expenses were held relatively constant.

It’s also pleasing to see that Mr Bouris together with fellow employees and directors own 26% of the company, while Macquarie Group (ASX: MQG), which provides a number of banking services to Yellow Brick Road, holds a strategic 15% stake.

Foolish takeaway

Yellow Brick Road certainly has potential and the previous success of Mr Bouris increases the chance that this venture will turn out to be successful too. With the firm aiming to be cash flow positive by the end of the current financial year, some investors are no doubt wondering if now is the time to “get on board”.

The dilemma faced by investors is that in FY 2013 the company reported a loss of $6.56 million, which was down only slightly from a loss of $6.8 million recorded in the FY 2012. With a market capitalisation of $112 million, investors must decide if and when profits will begin to flow.

While some investors are comfortable buying companies that they expect will pay dividends in the future, other investors require more immediate certainty. If you’re an investor who needs certainty now, then discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

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Motley Fool contributor Tim McArthur owns shares in Macquarie Group.

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