O.K., here is the report from Black and Company... The ticker is LINC.... Black and
Co is an institutional firm in the Northwest... Boutique firm, very respectable.The CEO of LINC was past
President of Nordstrom's..... He is still on the board of Nordstrom's.. LINC is not like E-Loan or Mortgage.com, they
do not work with the borrower, they work with the Mortgage Broker. 75% of all loans originate through mortgage brokers. Call the company and talk to Richie Campbell
the co-president, he is the numbers guy. Stock is at a 52 week low. Warrants are out there with a 50 cent price so this could be the bottom. ICE
Initiating Coverage
August 17, 1999
Additional details are available on the
following companies at 503.248.9600 or 800.325.0599.
For Equity Trading call 800.423.2124.
Plenum Communications/LION Inc.
(PLNM) $ 1.41*
Rating: Buy Jennifer Jordan 503.248.7559
Suitability: High Risk
*Priced mid-session August 17, 1999.
We initiate coverage of Plenum Communications with a Buy rating and a twelve-month price target of $5.10 based on 8 times our year 2000 sales es-timate of $16.0 million. Plenum Communications is the holding company for Lender's Interactive Online Network or LION, Inc. the leading provider of infor-mation services and automated underwriting tools for mortgage brokers and wholesale lenders over the Internet. Currently, LION is the only operating busi-ness owned by Plenum Communications and the efforts of Plenum's Board of Di-rectors and LION's management focus on this business.
Investment Highlights
1. LION's Internet portal, www.lioninc.com, provides the most extensive Loan Search engine and mortgage database on the Internet. The data-base is updated daily and accounts for variations around the country by sub-dividing the information within 32 specific geographic locations.
2. LION receives information from 450 wholesale lender partners. Conse-quently, LION's database contains information on more than 11,000 wholesale lender programs representing approximately 11 million loan alternatives for a mortgage broker to share with his or her client-more than those offered by any of LION's current on-line competitors. (E-Loan only has information from 70 wholesale lenders representing 50,000 loan alternatives).
3. The market for mortgage origination is huge and the online portion is expected to grow at tremendous rates. In 1998, the mortgage industry originated approximately $1.7 trillion of mortgage loans. Of these about 1%-2% originated on-line. In the next five years industry sources estimate that online mortgage origination should grow to account for 10-20% of the total or to volumes of $100-$300 billion generating $1-$2 billion in revenue.
4. LION's primary customer is the mortgage broker who in 1998 originated 70% of the $1.7 trillion of mortgage loans made that year. The industry estimates that there are 37,000 mortgage brokerage firms in the country. LION has 5,000 mortgage broker subscribers using its services and more than 500 new brokers sign up each month. LION estimates that these 5,000 subscribing members represent only 3,700 mortgage bro-kerage firms or a 10% penetration of the market. The company expects to see its subscriber rate climb to 8,000 broker members by year-end.
5. LION is NOT a bank and as such is not subject to the interest rate risk of its competitors who are involved in funding loans.
6. Because LION's primary client is the mortgage broker many of the loans processed using LION's Loan Search are for home-purchase buyers. Although mortgage brokers do a good deal of refinance business, the emphasis on first time buyers means LION is less subject to re-finance boom and gloom. In addition, the company's subscription services provide a continuous flow of revenue that is supplemented by fees from LION's new automated underwriting services and LION's subprime Loan Link service.
7. LION is among the first loan processing facilitators to have a direct link from the consumer to the mortgage broker to the wholesale lender into Fannie Mae's Desktop Originator service. LION Automated Underwrit-ing (AU) allows for point of sale answers on loan applications. Together with their mortgage brokers, clients complete a 1003 online, attach credit in-formation and using LION Loan Search select from applicable rates and pro-grams. LION AU takes the selected loan programs, uploads them via the Internet to the Fannie Mae Desktop Originator participating lenders. From there the information goes straight to Fannie Mae, and the system returns to the brokers' desktop within seconds answers as to the loans for which the cli-ents qualify, qualify with conditions or do not qualify. The same service will be available through LION AU to wholesale lenders, banks and other GSE's over the next year.
8. LION's Loan-LinkTM service allows mortgage brokers to electronically submit sub-prime loan proposals to multiple lenders for a timely response. In the first six months of 1999, Loan-Link facilitated the processing of more than $400 million of loans per month, or about $2.4 billion of loans total.
Company Description
LION, Inc. is the leading provider of Internet products for the mortgage industry. LION's Loan Pro services, including the branded products LION Loan-Search, LION Loan-Link, LION News-Now, LION Documents-on-Demand, and LION In-dustry-Directory, provide wholesale mortgage rate, fee and program information as well as news, documents and industry contacts to mortgage brokers. The in-formation is updated daily and available on a subscription basis through LION's Web portal, www.lioninc.com. LION, Inc. operates nationally maintaining 32 separate databases with mortgage loan program and rate information organized regionally to account for geographic variations across the country.
Using LION's Loan SearchTM, loan originators, i.e. mortgage brokers, enter in-formation about their client's loan needs and LION Loan Search quickly identifies the programs that fit those criteria and ranks them according to the best fit for the client. The LION rate and program database is the most complete and sophisti-cated in the country. The LION databases contain over 11 million loan pricing variances and over 11,000 wholesale lender programs with more than 450 wholesale mortgage lenders (including such names as Citicorp, Countrywide, etc.) contributing rate and program information daily. Currently, 5,000 mortgage originators subscribe to the service with 500 plus new originators joining monthly. LION, Inc. also supplies mortgage rate information to subscribing mortgage services companies, including E-Loan.
The company also facilitates the processing of sub-prime loan applications with its Loan--LinkTM product. Loan link allows mortgage brokers to submit sub-prime loan proposals to sub-prime lenders and receive a prompt response. In the first six months of 1999, the company processed more than $400 million in sub-prime loans per month, or about $2.4 billion of loans in total.
LION News-Now offers brokers and lenders the opportunity to track leading in-terest rate indicators, updated every 15 minutes daily, for the mortgage industry. LION Documents-On-Demand allows lenders to post daily rate sheets and other documents for brokers to access via fax or PDF download. LION Industry-Directory provides local contact information (in 77 geographic regions) to most all mortgage industry related companies and lobbies.
LION Pro's latest offering is LION AUTM (Automated Underwriting). LION AU makes possible Internet based automated underwriting via an interface to Fannie Mae's Desktop Originator service, and in the future via interfaces to any number of GSE's, wholesale lenders, or loan origination software (LOS) providers. First, using LION's Loan Search mortgage originators identify the loan packages ap-propriate for the client from the wholesale lenders of their choice. Then, using LION AU Desktop Originator interface, subscribing mortgage originators submit the loan application information over the Net to the Fannie Mae Desktop Origi-nator lenders. The potential loan packages are in turn sent to Fannie Mae, who rapidly returns to the originator via LION's Internet software a listing of which loans would be automatically approved for the client with click through buttons to automatically select the loan. This is the first true point of sale service applica-tion for the mortgage industry.
How LION Works
LION is also a leader in the design and hosting of wholesale lender and mort-gage broker homepages. The company ranks first in wholesale lender home-pages and second in mortgage broker pages. Wholesale lender homepages fall under the purview of LION Pro, which also offers wholesale lenders directory listings, document posting and lead generation.
The company's recent acquisition of IMark Design Group strengthens this posi-tion. IMark, now known as LION Choice, facilitates LION's bridge to the con-sumer. LION Choice is the designer and host of America Mortgage Online, a mortgage and real estate directory. It is also home to Mortgage101, the best source of information and tools for consumers wanting to learn about the home-buying process. LION Choice builds and hosts mortgage broker and realtor websites, offering the opportunity for these businesses to deploy Mortgage101 tools (like the loan payment calculator) branded with their own logos on their sites. In addition, LION will now offer subscribing mortgage brokers click through leads generated on LION Choice realtor sites.
Market Information
Last year, mortgage loan production in the United States totaled $1.7 trillion dol-lars, of which independent mortgage broker firms originated $1.2 trillion. Over the past 12 years mortgage brokers have grown their share the loan origination market from 20% in 1987 and 58% in 1996, to 70% in 1998. Industry sources estimate that at the close of 1998 there were approximately 37,000 independent mortgage brokerage firms, up from 25,000 in 1995 and 7,000 in 1987. The me-dian mortgage brokerage firm had five employees and produced 200 loans for total loan production of about $20 million.
In 1998, industry research suggests that only 1-2% of loans originated via the Internet. However, this number is expected to grow rapidly as more mortgage brokerage firms come on-line. In 1998, approximately 42% of mortgage broker firms had their own Web site, but sixty-five percent of those without a Web site expect to have one within 24 months.
Currently, about 27% of loan originators take applications electronically, and 47% of wholesale lenders use some form of automated underwriting via GSE's Fannie Mae, Freddie Mac and Indy Mac. Fannie Mae dominates this area with 43% of brokers using the Desktop Underwriter/Desktop Originator system, 26% use Freddie Mac's Loan Prospector and 2% use some other system (Indy Mac's e-MITS).
Approximately 18% of total broker production goes through automated under-writing. Fannie Mae has seen the number of transactions via its Desktop Origi-nation service nearly double over a nine month period, growing from 33,000 submissions in September 1998 to 60,000 in May of 1999.
LION, Inc. is well positioned to take advantage of the industry's move to Internet technology. The company should earn revenue from several different services and transactions along the loan processing chain.
Revenue & Sales
First, the company earns monthly subscription revenue from mortgage brokers and lenders using the LION news and rate information. Second, the company has signed an agreement with Fannie Mae for its services related to Desktop Origination. In addition, the company receives revenue for the development and hosting of Web sites for both brokers and wholesale lenders. Finally, the com-pany receives advertising dollars from lenders and brokers.
Direct sales and indirect sales forces located out of the Spokane, WA office han-dle sales of the LION subscription service. LION's Denver operation, LION Choice, handles sales of Web site and site-hosting services for mortgage bro-kers. Executive Vice President Joe Ringer handles advertising sales.
We estimate LION will have sales of $4.6 million and ($0.10) earnings per share with 26.8 million shares outstanding for the year ending December 1999. For the year ending December 2000 we expect revenues of $16.0 million and $0.01 earnings per share with 35.5 million shares outstanding. For the year 2001, es-timates are approximately $39.5 million and $0.15 earnings per share with 38.3 million shares outstanding.
Management and Board
Plenum Communications has pulled together a strong Board of Directors with expertise in both the mortgage and technology industries. Billy Anders, Sr. serves as Chairman of the Board of Directors. Mr. Anders served for 16 years with IBM Corporation in various key management positions, including Director of Field Operations in the General Systems Division. Since this time he has held key executive positions in numerous smaller technology entities and start-ups. Allen Ringer serves as President and CEO of Plenum Communications and brings extensive experience in both technology and real estate. Alan S. Dern-back has been a director of the company since 1997 and brings over 17 years of senior financial and administrative experience with technology companies. Sam Ringer, co-founder and CEO, as well as software author of LION Inc., has served as a director of Plenum since 1989. Joe Ringer, co-founder and Executive Vice President also has served as director of Plenum since 1989. Joe with Mornet Mortgage has worked in almost every position of a mortgage brokerage firm, in-cluding operations, brokering and management. Kurt Springman joined the Board in 1997. He is Compaq Computer Corporation's Senior Marketing Con-sultant for the Enterprise Solution Center for Windows in Bellevue, WA. Jacob L. Smith has been a director since 1998 and bringing extensive experience in busi-ness law. Larry H. Dale joined Plenum as a Director in 1998. He is Managing Director of Newman & Associates, a wholly owned subsidiary of GMAC Com-mercial Mortgage and a leading investment banking firm, specializing in financing affordable housing. Mr. Dale is Chairman of the Board of the National Equity Fund. Mr. Dale also serves on the boards of a number of national housing and development organizations. He was a Senior Vice President of Fannie Mae, Ex-ecutive Director of Fannie Mae's National Housing Impact Division and a member of Fannie's Operating Committee. Mr. Dale is also a former Deputy to the As-sistant Secretary for Housing/FHA Commissioner, responsible for HUD's multi-family housing activities. The most recent additions to Plenum's Board are John McMillan and J.C. (Tuck) Marshall, both of whom joined in the first half of 1999. Mr. McMillan is a Director and member of the Executive Committee of the Board of Directors for Nordstrom, Inc. He has been associated with Nordstrom for 40 years and has served as a member of Nordstrom's Office of the Chief Executive Officer for 28 years. Mr. McMillan was the first non-Nordstrom to hold the Nord-strom presidency and to serve in the Office of the CEO. Mr. Tuck Marshall is the immediate past president of the National Association of Mortgage Brokers (NAMB) and is president of J.C. Marshall Financial Services, Inc. a licensed bro-kerage of mortgages, real estate and insurance in Tinley Park, Illinois. He is also president of Margo Financial Services LLC, a national provider of wholesale resi-dential mortgages. He brings tremendous experience within the mortgage bro-kerage business, as a leader of national and state mortgage broker associations and a lobbyist for them. For a smaller company, Plenum has amassed a Board of Directors with a wealth of experience, in technology, mortgage lending and brokerage, and business management. This strength and diversity should help guide the company as it continues to grow into the leading national provider of automated underwriting services to the continuum of the mortgage industry from consumer to broker, to lender, to GSE.
Cash to Fuel Growth
Plenum is a publicly traded, OTC Bulletin Board Company that has been fully re-porting for all of 1999 and intends to seek a NASDAQ listing over the next sev-eral months. The Board of Directors has recommended a name change to the shareholders who will vote on the recommendation August 20, 1999. The motion calls for a change of name from Plenum Communications to LION Inc. since LION is the operating entity. The ticker symbol LINC has been reserved pending approval of the change. We anticipate that a reverse merger of the operating entity LION into the holding company, whether named Plenum or LION Inc. is likely, as it would streamline the corporate structure.
In the meantime, growth of the LION enterprise has been financed through the sale of warrants for Plenum Communications common stock. The company has approximately $3.0 million coming due by July 2000 from the exercise of ap-proximately 6.0 million outstanding warrants at an average price of $0.50.
The company is in the process of negotiating a $1 million dollar bridge loan to fa-cilitate its growth in the interim. The funds will be used to finance expansion as LION, Inc. gears up to market additional services to expand it's growing sub-scriber base, and to bring the reality of automated underwriting to the mortgage broker world via the Internet through it's pioneering agreement with Fannie Mae.
Competition
The market for Internet-based services and products is relatively new, intensely competitive, rapidly evolving and subject to rapid technological change. Within mortgage services area competition is increasing as wholesale lenders, like Countrywide, and banks attempt to market more directly to the consumer via the Internet. LION's success will depend upon its market penetration, ability to offer services to the mortgage broker, which distinguishes the company from the po-tential competition, and the building of a recognizable brand name. At present the most known publicly traded companies in mortgage origination services are E-loan, Finet.com and Virtual Lender.com. Mortgage.com, a private entity, has just filed for public offering and is the fourth most recognized name. LION how-ever, is extremely well positioned in that it provides rate and home page services to more mortgage broker entities and wholesale lenders than any of these com-petitors. With its unique Loan SearchTM search engine and more than 11,000 loan and rate programs (resulting in 11 million pricing alternatives) in its proprie-tary database, it is the most accurate and thorough provider of this information. In fact, E-loan is one of LION's largest subscribing customers. We believe that Lion's Loan Search and LION AU will become necessary tools for the mortgage brokerage industry, similar to the Multiple Listing Service (MLS) for the real estate industry.
In addition, LION is not and does not intend to become a wholesale lender or bank and therefore is not subject to the same risks as competitors like E-Loan that increasingly fund their own loans.
Summary
We believe LION is extremely well positioned to benefit both from the growth of the mortgage broker as originator within the mortgage industry and the move of an increasing amount of mortgage loan processing to the Internet. The com-pany's Loan Search engine, and comprehensive database of rate and loan pro-gram information representing the products of 450 different wholesale lenders to 10% of the mortgage brokerage market gives LION a reputation as a premier service provider in the industry. Yet, with only 10% penetration of that market, the company has plenty of room to grow. In addition, LION's burgeoning rela-tionship with Fannie Mae and subsequent relationships with other GSE's (read Freddie Mac and Indy Mac) and loan origination software vendors (read Calyx and Byte) represent upside opportunities not entirely reflected in our estimates. We estimate that LION will have revenue of $4.6 million in calendar 1999 and earnings per share of ($0.10), and of $16.0 million in calendar 2000 and earnings per share of $0.01. Our twelve-month price target is $5.10 cents or 8 times our year 2000 sales estimate of $16.0 million. For investors whose risk and financial circumstances permit selection of select bulletin board securities we recommend purchase of Plenum Communications shares.
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