YBR brings in maiden profit of $2m

The mortgage franchise has shown stronger financial results for FY17 including an increase in its underlying loan book

YBR brings in maiden profit of $2m



Mortgage and wealth management franchise Yellow Brick Road (YBR) has finally announced its maiden profit after ten years in the business.

In the company’s 2017 financial results, YBR has reported a pre-tax profit of $2.0m and earnings before interest, tax, depreciation and amortisation (EBITDA) of $5.2m.

“The work we’ve done in recent years to expand distribution, increase efficiency and diversify revenue has paid off and allowed us to deliver our maiden profit, even in the face of a tough lending environment,” YBR executive chairman Mark Bouris said.

“Yellow Brick Road now has a comprehensive, national distribution network and trusted brand, which underpins our growth. Despite the volatility of the sector, we’ve grown both our loan volumes and revenue. With these fundamentals in place, we are extremely well-positioned to win in this market.”

This was a “massive turnaround” from where the company was at this time last year, Bouris told Australian Broker. This reversal was due to cost control, he added, saying that YBR had undergone a significant reduction in head count and cost of operating during FY17.

The firm currently consists of around 1,700 individual broker businesses including Yellow Brick Road franchises and independent brokers working through YBR’s aggregator Vow Financial. There has been an equal share of growth between the two, Bouris said.

YBR also increased the underlying value of its loan book (the total size of its portfolio) by 17% to $44.1bn during the 2017 financial year – up from $37.8bn in FY16.

The company’s embedded loan book value also grew by 15.2% from $43.3m in FY16 to $49.9m in FY17. This reflects the predicted value of the loan book for the firm assuming a five year loan term and specific other factors around pre-payment speed, margins on each loans, defaults, etc.

This represents a reversal of last year’s trends where the embedded loan book value decreased, Bouris said.

“In the 2016 financial year, people were paying their loans off at a faster rate. They were refinancing and the reason for that is because everybody was changing their rates a lot and people were chasing new lenders.”

While this resulted in a smaller embedded loan book for Vow Financial, Bouris said the trend had now changed, symbolising a better quality book.

“These results demonstrate the true value of the company, which isn’t reflected in the current share price. When you consider our loan book, funds under management and our brand and distribution assets, there is a strong value story there.”

Bouris said the reason for the firm’s larger loan book was the above-system growth found across the board in YBR’s branches.

“What we’re noticing is we’re experiencing very good retention relative to the market. We seem to be able to retain our customers longer than everybody else.”

Customers stayed on with the firm because it had diversified beyond simple mortgages, he said.

“Our goal always way to be a distributed wealth system and wealth tends to make your mortgage book more stable.”

More detailed financial results will be released in YBR’s annual report and investor presentation to be held at a now unknown date in October.

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