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Why this small cap ASX financials share is on watch this morning

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The Mortgage Choice Limited (ASX: MOC) share price will be on watch this morning following the release of its half year earnings for the period ended 31 December 2019 after market close yesterday.

What did Mortgage Choice Announce?

The company recorded net profit after tax (NPAT) on an IFRS basis of $4 million, which was a significant 38% decline on the prior corresponding period (pcp).

NPAT on a cash basis came in at $5.5 million, a 22% decline on pcp, while NPAT on a cash adjusted basis was $6.1 million, a 1% increase on pcp.

Mortgage Choice recorded $5 billion of settled home loans during the period, up 22% on 2H19, while the company’s total loan book of $54.3 billion held steady on 2H19.

Mortgage Choice reported funds under advice in its financial planning business was up 30% from 1H19 to $1.1 billion, while insurance premiums in force came in at $31.2 million, up by 8% from 1H19.

Cash earnings per share of 4.4 cents were recorded, and the company declared an interim fully franked dividend of 3 cents per share.

Improvements in settlements during 1H20

Mortgage Choice commented that the interim results reflected a turnaround in Australia’s housing market and are in line with its expectations. The financial service provider noted that it had witnessed a steady increase in the volume of applications and approvals and despite settlements being down slightly on the previous corresponding period.

The company noted that settlements remained subdued going into the start of FY20, but activity increased steadily through the period. Even though settlements were down for the half by 4% on pcp, the company commented that they were up 22% on the 6 months to 30 June 2019.

Improvement in broker network growth

Mortgage Choice pointed out that it has started to see regeneration of its broker network, following its investment into a broker remuneration model and technology platforms in FY19. The company observed an improved rate of growth in new brokers joining the network.

The financial services provider observed that demand for mortgage broking continued to be strong with 55% of home loans originated from brokers during the quarter ended 30 September 2019. However, this was observed by Mortgage Choice to be lower from the heights of nearly 60% in the first quarter of 2019, due to a decline in investment lending.

Outlook for the rest of FY20

Mortgage Choice commented that it will continue its focus on attracting brokers and advisors to its franchise network, while investing further in its IT systems and brand during the second half of FY20.

Targeted recruitment activity was noted to be showing early signs of success with the network stabilising, and the company notes that its digital strategy is improving lead activity. The business will also actively ensure network readiness.

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Motley Fool contributor Phil Harpur 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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