Analysts at Shore Capital put their rating and target price on Morses Club under review on Monday following an unscheduled trading update from the lender, which included a profit warning and the sudden exit of its CEO.
Shore Capital stated that Morses’ update noted that its home collected credit division had been impacted in recent days by a rapid increase in claim volumes submitted by claims management companies and that chief executive Paul Smith had stood down from the role with immediate effect.
The analysts said that up until today, they were of the opinion that Morses had been doing “a relatively good job” of managing complaints when compared to its peers, making today’s news “a game changer” for the stock’s investment case, given that a number of other non-standard lenders had failed to survive after witnessing claims costs begin to spiral out of control.
Shore Capital also highlighted that outgoing chief executive Paul Smith had sold a number of shares only a few days prior to the announcement, something it thinks the FCA will be very interested in looking into further.
“Following this update, we are placing both our forecasts and recommendation under review. In all likelihood, the shares have now become un-investable, but without further detail and before knowing the extent of today’s likely share price gall (which is expected to be significant), it is not possible to take an informed view as to what an appropriate fair value is for the equity (although a zero valuation a distinct possibility) and hence recommendation there-on,” said Shore Cap.
