From Raging Bull message board. For those who are invested in EELN and believe in the online mortgage business, the following points are pretty intriguing. FNCM is rather cheap here at the 2+ level.
Finet Analysis
Over the last six months, FNCM has developed significant strategic alliances and business partnerships that will increase their current market position, on-line visibility and market share. This document highlights some of the major groundbreaking steps that Finet.com has experienced, and demonstrates how the company is strongly positioned to capitalize on the growth of the OLM sector.
In my opinion, FNCM stock price is significantly undervalued, and, at the current price, creates an enormous "buying" opportunity for all investors. The three primary areas of Finet.com's focus -- financial restructuring; corporate reorganization and identity; and revenue growth - are effectively being addressed by the management of the company, and, in time, will pole-vault Finet.com to the top of the OLM sector.
Last week I provided FNCM information both on the Yahoo and Finet.com Investors Club boards to better educate new and existing investors. I think you will find this information to be very helpful, and completely support your Finet.com (FNCM) investment strategy.
INDUSTRY OUTLOOK
Forrester Research -- "lending will account for 10% of all mortgages by 2003, or about $91.2 billion in lending volume. Forrester expects that in 1999, $25.7 billion of consumer loans - or less than 1% of the $2 trillion of credit extended to consumers this year - will be originated online. With the explosive uptick anticipated, Forrester projects that online originations will total 10% to 25% of key consumer credit markets by 2003, and that online lending will rise from $18.7 billion to $91.2 billion in the period."
Morgan Stanley Dean Witter -- "OLM will account for up to 20% of all origination's in the next five years, amassing up to $300 billion and generating between $1 billion and $2 billion in revenues for the nation's lenders."
Deutsche Bank -- "Online mortgage volumes are exploding," says James Marks, Managing Director of Deutsche Bank Securities Inc., in a report entitled "Revving up the Online Mortgage Machine and subtitled "From 0 to 60 ($billion) in Four Years." Deutsche Bank Securities, a New York City investment banking firm, estimates that online origination's grew to $4 billion in 1998 and represented roughly 0.3 percent of total origination volume."
"According to the Deutsche Bank Securities study, more and more of the market is going online. While $4.2 billion was originated online in 1998, the report estimates that online sites will be generating more than $800 million in monthly mortgages by the end of 1999." Marks further predicts that online origination's will grow to 6 percent of the total origination market in 2000 and to 23 percent by 2003. Close to 60 percent of the online origination's will be done by e-commerce specialists firms, with existing mortgage lenders accounting for the balance. Marks also notes that Internet-enabled households are projected to grow from the current 20 to 25 million to as many as 45 million within five years."
ANALYSTS OUTLOOK ON FINET.COM
Steve Franco of Piper Jaffray -- "Finet.com has been overlooked as they went public the quick and dirty way -- they reversed into a shell -- without official Wall Street sponsorship."
Thomas R. Hain of Warburg Dillon Read -- "We are initiating coverage of Finet Holdings with a buy recommendation…today, through it's suite of services, products and web sites, Finet offers virtually every service offered by high profile competitors and, in our opinion, much more. Looking to the future of Internet mortgage banking, we also think Finet has a well thought-out winning strategy."
"Finet offers an opportunity to be an early-stage investor in the online mortgage sector. It has made technology investments and has a revenue track record, and we think profitability and positive cash flow are just around the corner."
"Through a number of subsidiaries and products, the company is pursuing what we think are sound strategies in:
· traditional wholesale channel
· direct-to-consumer online retail channel
· direct-to-consumer online broker channel
· real estate agent channel"
"We estimate the online mortgage market was roughly $5 billion in 1998 and believe it should reach $10 billion in 1999. Although not all Finet's loans are originated online, we think the company could increase loan originations from an estimated $1.4 billion in fiscal 1999 to $2.6 billion in fiscal 2000."
"Finet is behind its competitors in the branding war. To address this, the company is pursuing an effective alliance strategy, in which online and offline partners are driving volume to Finet's sites."
Finet has "unmatched management depth." Finet, which has a history of strong marketing and technology management, recently added a number of heavy hitters on the mortgage banking operations, financial management, and secondary markets businesses."
"Finet wants to take on the role of an online fulfillment company (i.e. the back office) for the online broker. Finet would like local agents' and brokers sites to be "powered by Finet" Finet has started this process by implementing a strategy used by mortgage.com. Finet is giving its brokers online access to Fannie Mae's Desktop Underwriter. We think Finet's strategy is very prudent because it does not underestimate the potential power of the broker and agent as an intermediary."
Mary Meeker of Morgan Stanley Dean Witter -- "Mortgage internet companies like FINET provide a good play on growth in Internet Mortgage lending, being a strong pioneer in this industry. This company has developed skill in setting up "private label" web-based mortgage origination platforms for banks, homebuilders, mortgage bankers and realtors. Also, it has access to Fannie Mae's automated underwriting technology with immediate mortgage approval. If Morgan Stanley Dean Witter's industry growth projections are on target (Morgan Stanley Dean Witter predicts that the potential for on-line mortgage lenders is $1 - 2 billion in revenue in five years), then Finet, in addition to other companies, should have plenty of business with strong growth over the next five years."
Amar Mehta of CIBC Oppenheimer -- "We base out strong buy rating on (Finet based on) our belief that (1) the Internet, as an origination channel, will quickly gain market share in the $1.43 trillion mortgage origination market, and (2) Finet is at the forefront of technology and operational strategy to take advantage of this trend."
In addition, Mehta was quoted as saying: "You have an industry that's tailor-made for the Internet, Finet needs to have a brand name, but their strategy's sound."
INTERNATIONAL OPPORTUNITIES
This is printed from the April 23, 1999 edition of Inman News.
The online real estate industry may not be just a North American phenomenon for long.
While Internet use is skyrocketing in the U.S. and Canada, the online bandwagons are even bigger overseas, according to Computer Industry Almanac.
By 2005, North America will account for only 32.1 percent of Internet users, down from 55.5 percent today. The online population will explode most in the Asian Pacific region, according to the report, growing from 15.5 percent of all users to 23.8 percent, and Western Europe, jumping from 23.3 percent to 28.2 percent.
Online growth will occur at an even faster rate in Eastern Europe/Russia and Latin America. Both regions account for 3.8 percent of the online population now, but will comprise 12.2 percent of all users in six years.
Not even a decade ago, only less than 1 percent of the U.S. population used the Internet, according to the Almanac. But by 2005, 72 percent -- or nearly three out of every four Americans -- will be on line.
(Of note, on July 29, 1999, Chris Larsen, E-Loan's CEO, was asked by CBS MarketWatch the following question:
"What's the fastest growing region and which area will begin to have a materiel impact on business?"
Larsen's reply was as follows: " The U.S. is clearly the most important. We're in every state and we're the market leader. But now, it's important to move aggressively overseas, especially in Europe. We just partnered with Ruppert Murdoch's News Corp. and Softbank in the U.K./Australia market, where they infused $22.5 million in our operations. Also, in the European continent, we've partnered with L.V.M.H. We're also moving strongly in Japan and Korea. We think globally is the place to be.").
International opportunities could be substantial for Finet.com.
OTHER OPPORTUNITIES -- BANKS AND ON-LINE BROKERAGES
With everyone predicting a bright future for online mortgages, executives at the nation's largest banks and financial institutions are trying to decide whether to buy their way into the online lending channel or build their own models.
At least two large financial institutions - Washington Mutual and Providian Financial - are buying into the space. Washington Mutual entered into a strategic alliance with Keystroke Financial; Providian Financial acquired GetSmart.
On the online brokerage front, DLJdirect Inc, the online brokerage subsidiary of Donaldson, Lufkin & Jenerett, announced last week that it had entered into a multi-year strategic partnership with Prism Financial that will allow investors to access online mortgage rate quotes, prequalify and apply online for a mortgage, and obtain other mortgage services online through DLJdirect.
Developing a partnership or alliance with a large financial institution and online brokerage would create additional opportunities for Finet.com.
FINET.COM OUTLOOK
Here are some quotes from Mark Korell, Chairman and CEO of Finet.com, that have been abstracted from various trade journals and Finet Focus, a publication of Finet.com. Inc., that is worth referencing:
March 6, 1999 edition of Mortgage Banking
"Korrell sees Finet.com as "an electronic version of a multichannel mortgage bank." He says the firm's web sites and lender relationships "let us serve any consumer in the $1.3 trillion mortgage…eventually Korell foresees larger companies - including both technology firms and financial institutions - purchasing Internet-based originators."
Finet Focus Newsletter - Spring 1999
"We now have a concrete strategic plan that will guide us to achieving all of our immediate goals and align us for success. The future is very bright."
"In recent months we have reorganized our management team with a better reporting structure and the addition of several executives with excellent track records in taking companies to nationally prominent positions. Finet's financial situation has vastly improved with an influx of capital and the clearing up of financial setbacks we faced last fall."
"The investment community is confident enough in our future success to have invested more than $28 million (this figure is now in excess of $40 million) dollars into the company."
FUTURE ACQUISITIONS
On June 24, 1999, Finet.com announced they had signed a letter of intent to acquire a privately held Internet mortgage company. This rapidly growing on-line business would double Finet.com's consumer channel revenues and create full nationwide scope for their e-commerce lending capabilities
PARTNERSHIPS, ALLIANCES AND AGREEMENTS
Since Mark Korrell has taken over the reigns (October 1998), Finet.com has announced eleven (11) new partnerships, alliances or agreements, an average of over one (1) per month (with more to follow):
· Resicom Analytics (11/3/98)
· MortgageAuction.com (11/23/98)
· Prism Mortgage (3/8/99)
· NetZero.net (3/9/99)
· XOOM.com (5/13/99)
· Ask Jeeves (5/17/99)
· Cox Interactive Media (5/26/99)
· GetSmart.com (6/18/99)
· Homeseekers.com
· About.com (7/22/99)
· Forbes.com (8/5/99)
All of the alliances are significant, with each supporting the overall objective of INCREASING consumer and the investment community awareness of Finet.com. Just look at the potential number of impressions (visitors to the sites/members) to better understand the impact of these alliances:
· Xoom.com - 7,500,000
· Ask Jeeves- 1,900,000
· Cox Interactive Media - 15,000,000
· GetSmart.com - 8,100,000
· About.com - 87,600,000
· Forbes.com - 39,600,000
Total - 157,900,000
That's right…157.9 MILLION visitors to those sites. The potential is enormous. And given that none of those sites had impacted last year's (or last quarter's) financial results, the future potential of those sites increasing Finet's REVENUE (and EARNINGS) are significant.
WHAT ARE THESE COMPANIES SAYING ABOUT FINET.COM?
SCOTT DUFFY, VP OF SALES & SPONORSHIP -- XOOM.com
"Finet.com's dedication to simplifying the mortgage process via the use of the Internet is on target with our goal, fast, easy and secure online mortgage services will be a great benefit to our members."
JAMES ROWE, CEO - GetSmart.com
"We chose to partner with Finet.com.com because they are a proven technology leader and have shown an unique grasp of what consumers are looking for in the mortgage space. The addition of Finet.com's multi-lender services helps fortify GetSmart.com's position as a leading unbiased on-line marketplace for borrowing. This alliance expands consumer choice at getSmart.com with more options for proceeding on-line with the actual process."
DOUG CARSON, DIRECTOR OF ADVERTISING - Forbes.com
"We are very particular when choosing our business partners, and we are confident that Finet.com is a quality on-line lender that will greatly facilitate the mortgage process for our customers."
In addition, after it was announced that Finet.com and Monument Mortgage had recently won Fannie Mae's Technology Leadership Award, the SVP of Fannie Mae's Western Region (Jaynie Studenmund) was quoted as follows: "Finet.com and Monument Mortgage have been pioneers in the development and utilization of innovative e-commerce technology…the ability to offer an underwriting recommendation in minutes brings added value to our lenders. We're proud to work with this technology leader."
CAPITAL COMMITMENTS.
$43 million in capital commitments over the last six months has been raised in private equity.
MARKETING
$10 million has been earmarked for national branding and marketing campaign.
RUSSELL 2000 AND RUSSELL 3000
Incorporated into the Russell 2000 and Russell 3000 in July 1999.
NEW MANAGEMENT
Additional members have been added to Finet's Executive Team in 1999, including:
· Chris Skeadas - EVP, Chief Technology Officer (former CIO at GMAC Mortgage)
· Kevin Gillespie - EVP, Sales and Marketing (15 years of experience in the mortgage industry)
· Gary Palmer - EVP, Chief Financial Officer (held senior financial positions at Freddie Mac, Imperial Savings and Southern Pacific Funding)
The new executive team includes individuals with experience in mortgage banking, Internet technology, financial management, sales and marketing and secondary market transactions (Note: Mark Korell had been the CEO of Norwest, the nations largest lender).
HEADQUARTERS RELOCATION
Finet.com just inked a deal for 40,000 s.f. in Bishop Ranch, Ca. that will allow them to grow by 90 additional hires (versus 160 or a jump of 56%) over the next 12 - 15 months. According to Tom Porter, Finet.com's EVP of Administration, "we're building our business...that's our strategy, and we're executing it."
INSTITUTIONAL HOLDINGS
At least 25 institutions are holders of FNCM stock, including The Munder Net Net Fund. This list has grown over 600% in just the last three months, with total institutional shares purchased during this period amounting to 4.6 MILLION (or 6.2% of total shares owned)
FINANCIALS (FY '99 v. FY '98)
· Revenue growth of $7.2 million (47%)
· Loan volume increase of $728 million (127%)
· $1.3 billion in total loan volume
· Increase in Conforming Mortgage Loans of 2,130 (84%) and volume of $346k (96%)
· Consumer (+275%) and business to business (35%) channel revenue increase
FINET.COM (FNCM) v. E-LOAN (EELN) -- Key Statistics
Finet.com has higher annual revenues and more favorable earnings per share than E-loan, but Finet's stock price is substantially lower. Based on the following statistical data, FNCM stock price is undervalued in comparison to EELN.
STOCK PRICE (8/6/99 Market Close):
FNCM - $2.75
EELN - $23.25
EELN vs. FNCM - +$20.50 (745%)
REVENUE
FNCM - $14,693,000 (FY'98, May 1997 - April 1998)
EELN - $6,832,000 (FY '98, January 1998 - December 1998)
EELN vs. FNCM - (-$7,861,000 or 54%)
FNCM - $22,413,000 (FY '99, May 1998 - April 1999)
EELN - $21,100,000 (FY'99 Estimate, January 1999 - December 1999, per Hambrecht & Quist)
EELN vs. FNCM - ($1,313,000 or 6%)
(Note: For the last six (6) quarters for each respective company, FNCM has had higher revenues than EELN in every quarter, except one quarter)
EARNINGS PER SHARE
FNCM - $(.30) (FY'98, May 1997 - April 1998)
EELN - $(.98) (FY '98, January 1998 - December 1998)
EELN vs. FNCM - $(.68) or -69%
FNCM - $(.79) (FY '99, May 1998 - April 1999)
EELN - $(1.00) (FY'99 Estimate, January 1999 - December 1999, per Hambrecht & Quist)
EELN vs. FNCM - $(.21) or -21%
PRICE SALES RATIOS (PSRs)
Price Sales Ratio (PSRs) is perhaps the most powerful single valuation method available. They work much, much better than price-earnings ratios. The price sales ratio is just like a price-earnings ratio that uses corporate sales instead of corporate earnings
FNCM
1999 Revenue - $22,413,000
# Shares Outstanding - 78,100,000
Price/Share - $2.75
Market Cap - $214,775,000
PSR - 9.6 ($214,775,000/$22,413,000)
EELN
1999 Revenue (Estimate) - $21,100,000
# Shares Outstanding - 38,300,000
Price/Share - $23.25
Market Cap - $890,475,000
PSR - 42.2 ($890,475,000/$21,100,000)
IF FINET.COM WERE TO TRADE AT AN EQUIAVLENT PSR TO E-LOAN'S ESTIMATED PSR, FNCM MARKET CAPITALIZATION WOULD BE EQUIVALENT
TO:
FNCM Adjusted Market Capitalization: $945,828,600 (42.2 x $22.4M)
Yielding FNCM a per share value of: $12.11 PER SHARE ($945.8M/78.1M)
SUMMARY
In my opinion, Finet.com's current $2.75 share price is significantly UNDERVALUED in relation to its key competitor (E-Loan) and the overall growth of the OLM sector. In light of the substantial strategic advances made by Finet.com over the last six months, this probably represents perhaps the best investment buying opportunity EVER for the stock.
FNCM is poised to be the market leader in the OLM sector. With the strength of the most recent alliances, and future partnerships, FNCM stock will quickly start to rise. To quote Mark Korrell in the Spring 1999 Finet Focus newsletter, "…we will aggressively continue to build shareholder value."
|
