What happened to the Share Price, page-38

MNY lends in the used car finance space, I watched a presentation with Scott Baldwin and he mentioned the average loan amount was $8,500. He also mentioned that competitors were of similar size or smaller. I can remember from presentations in the past that MNY has about 3-4% market share of used auto lending.

So, with regard to the housing market downturn impacting new car sales, it is primarily the prestige end of the market at this stage. It is not hard to see why this is the case. If people aren't seeing their housing equity increase 10% this year, in fact the opposite, they are not exactly going to go out and buy a new Land Rover.

However, I think trying to draw conclusions on MNY's outlook from the new car sales doesn't really work. First of all, MNY's customers don't usually own property and are therefore not directly impacted by the negative 'wealth effect'. Secondly, MNY lends in the used car space and the amounts lent are low compared to the majority of car sale prices. Thirdly, MNY's customers are simply people who NEED a car, it's not really a discretionary purchase like trading in an old car that's a few years old and buying a new one because your house increased in value by $100,000.

By far the biggest impact on MNY should therefore be unemployment and the health of the economy, and that's around 5% and expected to fall in the coming year. Going further, it would be unemployment in blue collar and retail sectors that would probably impact MNY the most. Although the residential construction outlook is poor, governments, particularly in NSW and VIC, are stepping up infrastructure spending in a big way over the next few years. We are also likely to see a Labor Federal Government which will be more inclined to spend, first home buyer grants, to prop up the housing market (construction) and hand out money via tax cuts and increased welfare for discretionary spending (retail).

On a side note, one wildcard is the petrol price. A lot of MNY's customers live in outer suburb regions and, obviously, have a car and do a lot of commuting. A spike in petrol prices to say $2 would probably really hurt the loan book quality if it persisted. However, oil has come back a lot (circa 20% decline in price) with prices likely to be well under $1.50 per litre in major metro areas, so no stress there either. I suspect direct debt repayment defaults have improved over the last couple of weeks and may improve further as prices retreat.

The outlook, in my humble opinion, is good for MNY because the economy is likely to keep rolling along with government intervention if needed, or without. More people, more jobs, more in out suburbs 'growth corridors' and much tighter mainstream credit. This is going to be a good place to be over the next couple of years, if not indefinitely.