Homeloans Limited (ASX: HOM) – a mortgage comparison website and provider – has seen its shares trade largely flat today, following the announcement of its half-yearly results this morning.
In the six months to 31 December 2014, the $70 million company saw revenues slide 1.1% lower to $27.49 million and profits drop 21% to $2.63 million, versus the prior corresponding period.
Whilst settlements of branded (managed) mortgages rose 11.4%, net interest income (the money they make from loan repayments) slipped 1.1% to $4.015 million.
Although the results appear quite ordinary, CEO, Scott McWilliam, said, "This is a positive result given intense competition in the market and relatively high levels of refinance activities being undertaken by borrowers seeking to take advantage of historically low interest rates."
The company also stated investment in distribution staff and brand resulted in an increase of operating expenses of 7.1%, however overall operating expenses actually declined 3.8% compared to a year earlier.
Pleasingly, Homeloans will pay a two cents per share dividend, in line with last year's payout.
Commenting on the outlook, the company stated the low interest rate environment, spurred on the by the Reserve Bank of Australia's recent decision to cut rates to just 2.25%, coupled with strong settlement activity in the December quarter of 2014, will likely see volumes continue into the remainder of 2015.
Should you buy or sell Homeloans shares?
If Homeloans continues to pay its current dividend into the second half of the current financial year, its shareholders are sitting on a forecast dividend yield of 6.2% fully franked. Whilst the payout, coupled with a price-earnings ratio of just 13, looks great, I would exercise caution before hitting the buy button. Intense competition in the market combined with lofty property prices would compel me to have a much wider margin of safety than currently being offered.
