What happened? Shares in wealth management and financial services company Yellow Brick Road Holdings Ltd (ASX: YBR) surged 6% on Friday as the group announced that loan settlements had surged by an incredible 43% in the six months to March 31.
The Mark Bouris-fronted group, which provides mortgage broking, financial planning, insurance and tax services via its neighbourhood-based branch network, grew its loan settlements at three times the industry average as interest rates plunged to their lowest levels on record.
How did they do it? Yellow Brick Road's broking group includes YBR branded storefronts and a network of over 700 broker distribution points the group acquired when it purchased Vow Financial and Resi Home Loans last year. Yellow Brick Road's mortgage brokers have access to loan products from over 40 banks and financial institutions, however it's believed that the group's no-frills 'Rate-Smasher' product has been a key drawcard for customers.
YBR-branded loans are backed by Macquarie Group Ltd (ASX: MQG) and the increased distribution network has resulted in a surge in interest from customers looking for low interest rate loans.
Impressively, this growth has come at a time when APRA has started to tighten its regulation of the big banks, however YBR's heavy skew to the east coast has no-doubt influenced the strong result.
What now? Now is the time when smaller lenders will come into their own. Major lenders from Commonwealth Bank of Australia (ASX: CBA) to Australia and New Zealand Banking Group (ASX: ANZ) are feeling the pinch after being forced to curb their loans to investors, while groups like Yellow Brick Road, Mortgage Choice Limited (ASX: MOC) and Homeloans Limited (ASX: HOM) are picking up market share.
Should you buy? Everything's heading in the right direction. Yellow Brick Road reported at its half-year result that group market share rose to 4.1% in December, from 3.2% a year earlier, and 2.2% a year before that. Group loans under management rose to $27.8 billion, up from $22.7 billion a year earlier, and settlements rose to $6.2 billion from $4.1 billion 12 months earlier.
The purchase of Vow and Resi has been incredibly important. It's enabled Yellow Brick Road to achieve two successive quarters of underlying operating cash surpluses, and has resulted in an astonishing 116% increase in funds under internal advice management in just three quarters.
There are risks though. Yellow Brick Road is still generating a net loss and is expected to continue doing so. The shares are also tightly held, with over 80% of outstanding shares held by the top 20 holders at the end of the last financial year. There are also roughly 8% of shares in escrow until August 29 this year, which could put a dent in the share price later this year, however Yellow Brick Road remains an enticing small-cap opportunity.
