Financial services group Yellow Brick Road (ASX:YBR) is focused on building branch and client activity to deliver a strong fourth quarter for the 2014 financial year.
Tantalisingly, it is also progressing recently announced acquisition opportunities which it has flagged previously as being in discussions with three groups.
The fourth quarter is traditionally the most productive for all divisions and cash flow are expected to improve.
YBR has increased its distribution footprint with 197 branch agreements signed at the end of the quarter, up from 184 at the end of the previous quarter.
This includes an additional three replacement branches as well as the first agreements signed for Northern Territory, along with a marquee retail shopfront in Melbourne CBD.
It has also grown its accreditations with 70 authorities for credit and personal advice now in place, allowing its advisers to sell more products, which would in turn generate more revenue.
Third Quarter Summary
Yellow Brick Road has delivered a 17% improvement to its net operating deficit to $1.11 million in the March 2014 quarter.
This is a good result for the seasonally slow quarter given that mortgage settlements in the December quarter were at their highest level in the company's history.
Besides the reduction in net operating deficit (excluding net insurance underwriter payments that have no impact on profit), the company also reported a 2% increase in receipts from branch customers to $5.04 million from the previous quarter.
This represents a 44% increase on the previous corresponding quarter.
Overall receipts from customers were down 11% to $6.06 million.
Total cash outflows, which also include payments to branches, were reduced by $0.95 million (12%) to $7.17 million.
Operating cash outflows, excluding net underwriter payments and branch payments were down 16% to $3.55 million.
During the March 2014 quarter, Yellow Brick Road executed its first major digital campaign that focused on busting 30 mortgage myths to help people make more informed financial decisions.
The campaign began on 10 February and resulted in record lead flows for the months of February and March.
In March, it also submitted its five point plan to the Financial System Inquiry, which called for reform in order to support the two Australian dreams of owning a home and retiring comfortably.
The company further launched its first "Ask My Advice" Day, a community initiative that encourages local residents to visit a Yellow Brick Road branch to ask their mortgage, superannuation, insurance, retirement and savings questions.
This will take place nationwide in over 50 branches on Saturday 3 May 2014.
The Rate Smasher home loan was the focus of the digital campaign which was executed in the quarter
The loan book reached $2.44 billion at the end of the quarter, up from $2.22 billion at the end of the third quarter.
Revenue from the company's Wealth Management business continues to represent a third of all branch revenue and it has held a series of Wealth Workshops have been held with all branches to continue this momentum.
RetireRight continued to grow over the quarter, reaching $36 million in FUM and has now established superannuation accounts for around 1,000 clients.
Life insurance in-force premiums increased to $4.5 million up from $4.01m in the previous quarter. This represents a 143% increase on the previous corresponding period.
Smarter Money continued to grow over the quarter, reaching $143 million in FUM.
Over the 12 months to 31 March, the fund delivered a total return of 4% per annum after fund fees.
Yellow Brick Road also launched a new Separately Managed Account (NYSE:SMA) in March that targets higher yields through investment in ASX-listed bonds and hybrid securities.
This is available for the clients of financial advisers and provides a separate model portfolio of securities for each investor.
While the third quarter of the 2014 financial year was focused on building the foundation for a strong fourth quarter, Yellow Brick Road nonetheless continued to make progress on its goals.
There is also "blue sky" upside for YBR investors as it is known to be casting its eye over three recently announced acquisition opportunities.
On the financial side, a 17% improvement on net operating deficit to $1.11 million and a 2% increase in receipts from branch customers to $5.04 million despite the quarter being seasonally slower due to holiday breaks in January and shorter month in February are positives.
The company also continues to build brand recognition and its branch network to serve customers across Australia.
The path for Yellow Brick Road to deliver cash flows and a maiden profit for investors in FY2015 is certainly growing smoother.
From initial coverage, Proactive Investors continues to like what we see developing at YBR. In short, we are reviewing our initial price target toward an upward inflexion scenario.
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