Key points:
- Morses Club results will now be next week
- The numbers are important, yes
- But the really important point is compensation to past borrowers
Morses Club (LON: MCL) has indicated that profits and trading numbers are inline with their past predictions – but that the results will actually be announced next week. The interesting thing here being that MCL shares and their value only partly depend upon what those trading results are. For there's that other issue – the one that killed Wonga and gives Amigo Holdings such headaches – which is compensation to past borrowers.
The problem here for all of those in the low credit rating lending world is that the authorities have rather pulled to rug out from underneath them. They've also done this in a manner which leaves the companies subject to vast demands for compensation from past activities. Activity which, if we look at it in one way, was entirely legal when the lending was done but is subsequently thought to be abusive in some manner. This means that all such companies are trailing a slipstream of aggrieved lawyers. How that all works out being the major determinant of the share price at Morses Club as with Amigo.
The actual news today from Morses Club is that the results will be announced Thursday week, 25th August. They're going to be largely in line with what they said they would be back in July. So, not a wholly exciting release then. But within that there is still the point that has to be made about MCL. The results do matter, but they're not the only thing which does.
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The reason the results matter is obvious enough – and not just because operating results always matter. The big question is, now that the rules have changed on such high risk lending, is there still a business in there? Morses Club has radically changed its lending model and at least appears to have a viable – under the new rules – business. We're looking to the results to check on that of course, but as they say they're going to be largely in line with what has already been announced.
The other question is whether the value of that business is going to be eaten by the compensation lawyers. There the issue is less certain – which is what explains the current valuation of MCL shares. Morses is trying to deal with this by a scheme of arrangement. Some certain amount is put aside to pay that compensation. There being something of a Mexican standoff here for the business needs to continue in order to be able to produce the revenue stream to pay the compensation. But leaving enough in the business to do this means limiting the compensation that can be paid.
Quite how this is going to work out is unknown. Which is exactly the difficulty we've got with valuing Morses Club shares. Logically, compo claimers should want to maximise the amount they receive. But whether they actually do that by allowing the business to continue in order to pay them, well, we don't know.