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*See the button of this report for important disclousers, ratings and risks. All figures in C$ unless otherwise specified.
Mortgage advancements were down 9% YoY; repayments were up 7% YoY
As a result, mortgage receivables declined 0.4% YoY to $33M
First mortgages remained relatively flat
Increased exposure to B.C.
Remains focused on single-family units (construction)
The average mortgage size was up 7% YoY
LTV was up 2.9 pp YoY, implying higher risk profile
Raised lending rates
In 2023, loan loss provisions were 15% lower than our estimate
Stage three mortgages (impaired) increased YoY, from 1.5% to 5.6% of mortgages, which we note is slightly higher than the sector average of 5%
As a result, loan loss allowances were raised by 1.1 pp YoY to 2.3% of mortgages
In summary, we believe the portfolio’s risk profile has increased due to higher stage three mortgages
Revenue was up 24% YoY, beating our estimate by 1%, due to higher than expected lending rates
EPS was up 22% YoY, beating our estimate by 5%, due to lower than expected loan loss provisions, and interest expenses
Dividends for Class A investors remained unchanged at $0.80/share, implying a yield of 8.9%
Debt/capital declined due to softer originations, and higher repayments
As interest rates have been higher than expected YTD, we are raising our 2024 EPS estimate
We will incorporate the ongoing bond financing into our models upon its completion
We note that the MIC should be able to distribute declared dividends ($0.80/share) even if loan loss allowances are raised by 500%
Sector multiples are up 9% since our previous report in November 2023, but 26% below pre-pandemic levels
Our fair value estimate increased from $10.01 to $10.18/share, driven by higher sector multiples, and our upgraded 2024 EPS estimate
We are reiterating our BUY rating, and adjusting our fair value estimate from $10.01 to $10.18/share, implying an expected return of 23% (including dividends) in the next 12 months. As we expect rates will start declining in H2-2024, we anticipate an increase in appetite for high-yielding stocks, such as BCF. Key risks include a softer mortgage origination market, and higher default rates.
Risks
The following, we believe, are the key risks of the company:
Maintaining our risk rating of 3
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