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Yellow Brick Road On Track For Underlying EBITDA Profit In FY2015

Yellow Brick Road (ASX:YBR) boosted consolidated revenues by 288% to $59.2 million for the six months to 31 December 2014.

The consolidated results included four months of trading of newly acquired Vow and Resi.

YBR is on track to achieve an underlying EBITDA profit in the 2015 financial year as it captures economies of scale by expanding its distribution through acquisitions.

This highlights its progress towards becoming a leading non-bank entity in Australia.

Cost growth for the half-year ended 31st December 2014 was contained at 33%, improving the operating expense to gross profit ratio by a third. Revenues were up 288% to $59.2 million.

Underlying EBITDA was up 84% to a loss of $490,000.

The acquisitions of Vow Financial and Resi Mortgage Corporation increased the number of group distribution points (branches and broker members) from 206 to 1,030.

"This is a strong result which reflects the benefits of our key strategies, particularly with regard to the diversification of distribution exposure and scale economies," executive chairman Mark Bouris said.

Growing Margins

YBR branches continued to support the Macquarie Bank white label product. This was expanded into the Vow and Resi networks.

On top of this, Resi's product manufacturing capability meant that Group product margin expanded significantly.

Overall product income increased by 74%. Sales resources are being added to deliver further penetration by YE15.

Diversifying by participating in all relevant markets

The Group closes this half as a major player in the mortgage broker channel as well as the owner of a growing franchise network.

This additional exposure to the booming mortgage market delivered normalised growth in settlements of 52% versus market growth of 14%.

Seizing the opportunity to take share in this growing mortgage market somewhat constrained wealth revenues, though wealth grew by 16% over the period.

Driving customer growth

YBR continued to challenge incumbents with a new advertising campaign leveraging the market power of NEC for affordable creative production and premium media.

This generated 93% growth in H1 leads.

Integration activities brought the marketing teams together for synergy and scale benefits.

Similarly, Vow continues to challenge wholesale incumbents with three commission models, growing at 4.6 times system and delivering > $1 billion settlements in December, after 5 years.

Broker support of Vow's stance remains high and unchanged post‐acquisition, at 92% Net Promoter Score.

Analysis

Yellow Brick Road is well on its way to achieving an underlying EBITDA profit in FY2015, demonstrating the benefits of acquiring Vow and Resi.

Revenue is up 288% while underlying EBITDA improved 84% for the half-year ended 31st December 2014.

This provides further support to our belief that FY2015 to be the tipping point for Yellow Brick Road as it consolidates the acquisitions and reaps higher revenues and earnings from these and at the branch network level to become a leading non-bank entity in Australia.

This should in turn set the stage for the company to be re-rated by the investment market as additional retail and institutional investors take a "weighting" in the stock.

YBR has a still sizeable $10.6 million in cash as at the end of 2014.

Proactive Investors continue to rate Yellow Brick Road as one of our top picks for 2015, and maintain our share price target of $0.73 to $0.97.

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