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Major brokerage downgrades FY19 forecast

A major broking franchise has revised its revenue forecast for the 2019 financial year as a result of an expected 10 per cent fall in home loan settlements.  

In a statement to shareholders, Mortgage Choice has said that it no longer expects to report a cash net profit after tax (NPAT) of $16.5 million as predicted at the firm’s annual general meeting, which would already be a drop of $6.9 million, after reporting a cash NPAT of $23.4 million in FY18.

At the firm’s AGM, Mortgage Choice CEO Susan Mitchell attributed the expected drop in earnings to costs associated with the implementation of its new remuneration model, operational changes and  “flat market conditions” that spurred a 7 per cent fall in its home loan settlements in FY18.

However, Mortgage Choice has now downgraded its forecast, now expecting a cash NPAT of $14-15 million.

The brokerage has said that its revised prediction has come off the back of information it received from its broker network, which said it has experienced longer processing times for loan applications due to “tighter lending policies”, with Mortgage Choice also pointing to the “slowing property market.

“On the basis of current experience and outlook, Mortgage Choice now expects its home loan settlements will be approximately 10 per cent lower than FY18 settlements,” the brokerage said.

Mortgage Choice noted that falls in settlements reduce commission revenue with a “corresponding flow-on effect to other revenue lines”.

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Mortgage Choice’s stock ‘under review’

Following Mortgage Choice’s revision of its outlook, independent investment research agency Morningstar announced that it has placed Mortgage Choice’s stock “under review”.

Morningstar said that it is seeking further clarification from management on the near to medium-term outlook for Mortgage Choice.

The research agency also expressed concern over the broader impact of potential regulatory changes to the broking model off the back of the financial services royal commission.

Earlier this year, the Australian Stock Exchange also removed Mortgage Choice from the ASX 200 list, stating that the group was “no longer meeting criteria for inclusion”.

However, Mortgage Choice has told shareholders that it has made “significant progress” and is confident that its operational changes would “build the platform for growth and long-term sustainability by reducing its underlying expenses.

Mortgage Choice has also committed to reducing its operating cash expense base by 10 per cent in FY19.

[Related: Risks of tighter lending flagged by economists]

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