Graeme Cunningham, analyst at Edison Investment Research, says he will increase Network Data’s valuation if the earnings before interest and tax margin of its HIP business reaches between 6% and 7%.
He says: “This increase will not be in 2007 because it is taking on costs. With revenues anticipated in the middle of this year, it will be in 2008.
“If Home Condition Reports were mandatory, profitability would be a bit higher. I think we’re being pretty conservative.”
Network Data was trading at 54.5p per share as Mortgage Strategy went to press, close to its 56.5p high.
Cunningham’s forecast formed part of a recent quarterly update note on Network Data. He says his bullish outlook is based on his expectation of limited further changes to HIPs ahead of their June 1 launch.
The government announced last year that HCRs would not be a mandatory feature of HIPS, at the same time as Network Data was preparing its initial public offering on the Alternative Investment Market.
He adds: “If we assume there will be no more changes, HIPs will be positive for Network Data’s business.”
Network Data, which listed on AIM last September, is trading in line with market expectations. Its mortgage broking business volume grew by 30% year-on-year for the 12 months to December 31 2006.