PSMH: Initiating with Outperform Recommendation
Ann Heffron, CFA
We are initiating coverage of PSM Holdings, Inc. (PSMH) with an Outperform recommendation and a 12-month target price of $3.00. PSMH’s strategy involves rapidly expanding its loan production capacity through acquisitions and improving profit margins of acquired companies by migrating them to PSMH’s higher margin lending platform, in order to achieve the requisite revenue stream and asset base to realize a stock listing on a senior stock exchange and become one of the top mortgage bankers in the United States.
PSMH has executed this plan quite successfully, acquiring five companies with $10.9 million in annual revenues, $553 million of annual loan production, and $1.7 million in net income since March 15, 2011, for which it has issued 6.5 million shares worth $5.0 million. In addition, one acquisition is pending and more acquisitions are planned.
When PSMH’s acquisition strategy has been fully implemented by the fiscal fourth quarter ending June 30, 2012, the Company expects to be originating $2.4 billion in annual loan production, significantly higher than the $144 million PSMH generated in fiscal 2011.
In addition, PSMH’s wholly owned subsidiary, United Community Mortgage Corporation (UCMC), has just been approved as the tenth lender to join the family of preferred mortgage lenders on the Costco Mortgage Services Platform. When fully ramped up, this could add an additional $1.2 billion in mortgage loan originations.
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 two wholly owned subsidiaries, PrimeSource Mortgage, Inc. (PSMI) and United Community Mortgage Corp. (UCMC). Through its subsidiaries, PSMH operates and is licensed in the following 17 states: Arkansas, California, Colorado, Georgia, Idaho, Iowa, Kentucky, Louisiana, Montana, Nebraska, New Jersey, New Mexico, New York, Oklahoma, Texas, Washington, and Wyoming. State license applications are pending in an additional 17 states, with the majority expected to be approved by December 31, 2011.
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