Kensington Slips Up
Ouch! Kensington shares took a dive today (down over 10%) after it released a trading statement saying that competition had lowered margins and lower income is being received from early redemption charges.
Kensington said, “Pre-tax profits for 2006 are likely to be within analysts’ expectations but towards the lower end of the range.”
Kensington had recently upped its stake considerably in the secured loans specialist Money Partners and reported secured loans business through this channel delivered strong growth. Although the figures aren’t separated, it said this business combined with first charge mortgages in Ireland “are over 100% ahead of the same period in 2005.”
I’m not an expert on this share, but get a slight feeling it’s got a slightly disjointed group. In this trading statement it reports the 57.5% share in Money Partners, a 64% stake in Start Mortgages and the recent purchase of a minority interest in a Swedish non-conforming lender. I know some channels are direct to consumer and some are down the packager/broker route, but I still get the feeling of each division of the group trying to fight its own battles, whereas a united front might be more appropriate.
These thoughts are sort of backed up by the statement “The direct-to-consumer distribution business, TML, continues to deliver low volumes of mortgage completions to Kensington Mortgages. Over the eleven month period it generated 5% of the total new business completions for the Group. TML’s cost-base has been reduced further but the cost of origination, for Kensington, via this distribution channel remains high. A new Managing Director was appointed in July 2006 and all aspects of the TML business model are being reviewed including the potential growth opportunities for its broker facility. The level of goodwill held on the Group balance-sheet for this business will be reviewed.”
In the last set of results the goodwill was around £17million, but it is difficult to assess how much of this is derived from TML, so consequently the amount of goodwill they are going to write off (as per the last line of the previous quote) is also difficult to establish.
Although what I’ve said so far may seem negative, I do get the feeling the shares will recover and that perhaps the bar had been set too high.
