Price collapse takes shine off Mark Bouris’s Yellow Brick Road

Investors have lost patience in Yellow Brick Road, the listed ­financial services firm Mark Bouris founded in 2007.

Yellow Brick slope

Mark Bouris plays the role of one of the country’s savviest businessmen on Channel Nine’s Celebrity Apprentice Australia. But in the world outside the television studio, investors have lost patience in Yellow Brick Road, the listed ­financial services firm he founded in 2007.

Despite lofty ambitions for the mortgage lender and wealth manager, which made its stockmarket debut in 2011 with the aim to take on the banks, YBR shares have crashed more than 75 per cent over the past two years. It’s a rout that’s wiped out about $150 million in market capitalisation from the financial adviser and lender and left behind unhappy investors who are now stuck in a company with several underperforming ­acquisitions.

The price collapse has burnt YBR’s cornerstone investors, which include some key names — Channel Nine owner Nine Entertainment and investment bank Macquarie Group — and has prompted Mr Bouris to overhaul YBR’s structure twice this year.

Even after a string of acquisitions and a $37bn mortgage portfolio, the company is yet to turn a profit. In early 2014, Mr Bouris said YBR was “on track” to deliver its maiden profit during that ­financial year.

Last month the company ­revealed its full-year loss had blown out to $9.5m — nearly tripling the previous year’s loss of $2.6m. All up, the company has lost a cumulative $36.9m over the six years since its listing.

As executive chairman, Mr Bouris — who made his fortune selling Wizard Home Loans to GE Money early last decade — now faces a huge challenge in turning around YBR. Analysts say the company has bitten off more than it can chew while those familiar with the business model ­believe YBR has relied too heavily on smaller bolt-on deals to fund its growth. But with a share price that fell to a record low of just 15c yesterday, YBR will find it tougher to use its shares as a currency to fund takeovers.

Mr Bouris, who owns more than 51 million shares, took home $1.6m in remuneration from YBR last year, a substantial cut from the previous year’s $5.6m. The reduction in pay also came with more responsibility. Last month’s restructure — the second overhaul this year — sliced as many as five senior positions and an undisclosed number of “management and back office” workers from the YBR payroll.

The shake-up is a bid to revive the group after buying out four separate companies over the past two years — Vow Financial, Resi Mortgage, BrightDay and Loan Avenue. Mr Bouris has now called on remaining employees to carry a heavier load. Last night YBR ­announced the sale of the wealth division’s accounting business and legal practice to the former owner David Carr for nearly $2m, with a consideration of an extra $2.8m over the next five years.

“I’m going to spend the next two to three years driving into hitting our capacity,” Mr Bouris told The Weekend Australian. “We have done a lot of acquisitions. Right now is not a time for doing those sorts of things. Now is the time to grow the business through our own productivity and our own organic stuff,” he said.

“I’m gonna be working a lot harder than I’ve ever worked,” he said. “Not everyone necessarily wants to do that but that’s the way I run things. And if they don’t want to do it they can leave … nobody has indicated that they don’t want to do it (but) I don’t like heavy management levels and heavy executive levels.

“I’m interested in people who will roll their sleeves up and get things done and actually go to the branches and see the customers. I don’t care if it’s me or the CEO — they’ve got to go and do it.”

It’s been a long journey for YBR to get to this point. The fall in the stock over the past two years has left the group with a market cap of just over $40m, down from about $200m at its peak.

Over the same period, YBR has been busy acquiring rivals to beef up its capacity to take on the big four banks. While investors have lost out, YBR has paid millions in advisory fees to BBB Capital and Golden Wealth Holdings.

BBB Capital is an investment advisory group founded by Mr Bouris and his brother Adrian, both of whom sit on the YBR board. BBB Capital has collected $2.2m in fees from YBR over the past six years, while Golden Wealth, an entity controlled by Mr Bouris, has been paid $3.9m in consultancy fees from YBR over the same period.

Last month, YBR’s $9.5m ­annual loss came despite increasing its revenue 31 per cent to $218m.

“Our foot was on the pedal, metaphorically speaking, right as the market cooled this year,” Mr Bouris said, explaining the result.

The company was hit on all fronts. Record low interest rates sparked intense competition in the lending market at a time when customers learned they can get a better mortgage deal if they pressure their bank. At the same time volatility ramped up the wholesale funding costs across the industry while regulators were cracking down on offshore property buyers.

“They were really trying to bite off more than they can chew,” one fund manager said. “They were loss-making before they made those acquisitions and then they made the acquisitions and they’re still only marginally profitable. That’s quite alarming for me — we were in a housing boom for three or four years and they seemingly weren’t able to capitalise on that.”

It wasn’t for a lack of trying. YBR spent millions on advertising during the housing boom to grab a bigger slice of the market. Over the past 12 months, it has spent $5.3m on advertising and marketing. The Celebrity Apprentice largely functions as a lengthy ad for Mr Bouris and YBR. He said the $20m “brand investment” over the past three years in YBR had laid the foundations for future growth.

The strategy has been an ­expensive bet for Macquarie and Nine Entertainment, which have been cornerstone investors since 2011, injecting tens of millions of dollars into the company. It’s a symbiotic relationship between the groups: Nine, which holds an 18 per cent stake, provides cash and advertising credits and ­receives YBR shares in return.

Typically, Nine would exit such an investment at the three-to-five year mark but, according to a source, it has been “a harder business to execute than Nine would have thought back in 2011”.

“They’ve done a really good job of building the brand but, fundamentally, it’s a big, branch-based, multi-site business. To get good business results means wrangling that on an operational basis and not just having a good brand,” they told The Weekend Australian.

The slowing of the housing market has also meant some pain for Macquarie. The investment bank teamed up with YBR in 2012, hoping to use Mr Bouris’s network of branches to gain a bigger slice of the $1.5 trillion mortgage market. Despite YBR acquiring non-bank lender Resi Mortgage in 2014 for a price of $36m and then taking over mortgage aggregator Vow Financial for $17.6m the same year, the businesses have failed to deliver the desired growth. Macquarie holds an 18 per cent stake.

Mr Bouris said he has run the ruler over most mortgage companies in Australia and he knows “what’s out there”. YBR was ­rumoured to have carried out due diligence over Macquarie-backed Homeloans Ltd, RESIMAC’s State Custodians and mortgage aggregator Finsure.

It is understood a takeover ­approach from YBR was knocked-backed by non-bank lender Mortgage Ezy. YBR’s share price, which was to have been used to fund part of the deal, was seen by Mortgage Ezy management to have downside when they were trading around 70c per share.

Mr Bouris is adamant that all the acquisitions are profitable.

“When I bought them they were profitable,” Mr Bouris said. “They’re still profitable. One of them is doing better than when we first acquired it.”

Mr Bouris said the wealth division had done “very well” in 2016, and the numbers appear to back him up. Funds under management grew by 35 per cent to $699m over the six months to ­December. Over the same period, loan settlements grew 41 per cent and the entire loan book grew 24 per cent to $32.3bn.

Mr Bouris put down the collapse in the YBR stock price to the state of the market clinging to yield stocks, or companies that pay out generous dividends, and said investors weren’t rewarding ambition.

“The market is looking for yield. We’re a growth stock. Our aim is to take market share from our competitors. And I don’t make any apologies for that.”