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Mortgage Choice share price surges 10% on strong divisional results

The Mortgage Choice Limited  (ASX: MOC) share price has surged 10% this morning following its half-year earnings release despite a 43% drop in net profit after tax (NPAT).

The results wrap

The one big positive from Mortgage Choice’s half-year results was its Lending segment’s loan book increasing by 1% on prior corresponding period (pcp) to $54.5 billion in the half. The company’s Financial Planning division delivered better than expected Funds Under Advice growth which increased 28.8% to $816.9 million in the half.

In my view, this is another example of Royal Commission pessimism creeping into estimates, as we saw a similar surprise when IOOF Holdings Ltd (ASX: IFL) reported earlier this week. Thus far AMP Limited  (ASX: AMP) has been the big loser out of the wealth managers having seen significant outflows in Q4 2018 as investors feared structural separation for the group (which wasn’t recommended in the final report).

The Financial Planning division also saw Premiums In Force rise 8.5% on pcp to $28.9 million despite potential headwinds in the sector, which boosted gross revenue for the segment 3.3% higher to $5.8 million in the half.

Other than this it wasn’t great news for the company, with settlements down 12.1% on pcp in Lending to $5.3 billion and gross profit for the group down 25.4% on a cash basis to $25.52 million.

FY19 Outlook

Management noted that the half-year was a period of slowing residential credit growth, tightening credit conditions, easing of property markets and economic uncertainty surrounding the Royal Commission.

While the company expects to achieve its FY19 operating expense reduction target of 10%, I think that the growing headwinds for the mortgage broking sector could see deteriorating earnings in 2H19.

For those Fools who are similarly bearish on the sector, I’d be looking at these top growth shares that have been tipped as market beaters.

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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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