PSMH: Reducing to Neutral following Third Quarter
Ann Heffron, CFA
PSM Holdings, Inc. posted a net loss of $1.4 million, or a loss per share of $0.05, for 2012’s fiscal third quarter, ending March 31, 2012. This compares to a fiscal second quarter net loss of $0.5 million, or a loss per share of $0.02. Although both quarters reflect the adoption of PSMH’s new business model, the current quarter includes the Iowa Mortgage Professionals, Inc. (IMP) acquisition for all three months while the second quarter includes IMP for only two months.
Relative to the year-ago quarter, which excludes all acquisitions except for a ½-month contribution from United Community Mortgage Corp., the net loss increased by $0.55 million from a $0.8 million loss, or a $0.06 loss per share. Revenues surged 373% year over year to $3.6 million as loan production advanced 253% to $117 million and the gross profit margin jumped 77 basis points to 3.04% from 2.27%, while expenses increased 210% to $5.0 million, reflecting the results of five acquisitions that PSMH has made in the last year.
However, the third quarter was below our EPS estimate of breakeven earnings as revenues were $1.2 million, or 25%, lower than our estimate due to weaker-than-expected loan origination volume and gross profit margins.
Thus, we are reducing our estimates for the June 30 fiscal years to a loss per share of $0.14 for fiscal 2012 and of $0.07 for fiscal 2013. While we believe that PSMH’s new business model holds promise, our projections show continued losses throughout the forecast period, though at a decelerating pace. Accordingly, we are lowering our recommendation to Neutral from Outperform and reducing our one-year target price to $0.75 from $1.25.
PSM Holdings, Inc. is engaged in the businesses of mortgage banking, in which PSMH both originates and funds mortgage loans through its own warehouse lines of credit and currently accounts for about 90% of closed loans, as well as mortgage brokerage, in which PSMH originates mortgage loans funded by over 50 third-party lenders. PSMH immediately sells these loans to its third-party lenders or into the secondary mortgage market. The Company offers a full range of mortgage loan products, including adjustable rate mortgages, fifteen, twenty, and thirty-year fixed rate loans, and balloon loans with a variety of maturities, as well as refinancing, construction loans, second mortgages, debt consolidation, and home equity loans.
PSMH had total assets of $5.1 million at the 2011 fiscal yearend on June 30, 2011, total revenues of $3.9 million for the 2011 fiscal year, and closed 845 mortgage loans, worth $144 million, during this period. Operations are carried out by the Company’s wholly owned subsidiary, PrimeSource Mortgage, Inc. (PSMI). Through this subsidiary, PSMH operates and is licensed in the following 13 states: Arkansas, Colorado, Florida, Iowa, Montana, Missouri, Nebraska, New Jersey, New Mexico, New York, Oklahoma, Texas and Utah.
To view a free copy of our most recent research report on PSMH, visit Ann Heffron's page at Zacks Small Cap Research .