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Disclosure: Builders Capital Mortgage Corp. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
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|
Key Financials (FYE - Dec 31) (C$) |
2023 |
2024(F) |
2025(F) |
|
Mortgage Receivables(net) |
$32,697,763 |
$35,112,698 |
$36,868,333 |
|
Revenues |
$4,675,142 |
$4,987,257 |
$4,714,758 |
|
Net Income |
$3,293,458 |
$3,686,503 |
$3,200,241 |
|
EPS |
$1.04 |
$1.17 |
$1.01 |
|
Dividends per Share (Class A) |
$0.80 |
$0.80 |
$0.80 |
|
Dividend Yield |
9.01% |
9.36% |
9.36% |
*See last page for important disclosures, rating and risk definitions. All figures in C$ unless otherwise specified.
Mortgage advancements were down 23% YoY; repayments were up 44% YoY
As a result, mortgage receivables declined 4% QoQ to $31M; we are maintaining our year-end estimate at $35M
We will incorporate the impact of the ongoing bond financing into our models upon its completion
First mortgages increased, implying lower risk
Source: FRC/Company
Increased exposure to B.C.
Remains focused on single-family units (construction)
The average mortgage size was down 4% QoQ
Source: FRC/Company
LTV was down 1.6 pp QoQ, implying lower risk
The average lending rate declined slightly, primarily due to higher first mortgages
Source: FRC/Company
Foreclosed properties increased QoQ, from 2.0% to 4.6% of the portfolio
However, stage three mortgages (impaired) decreased QoQ, from 5.6% to 2.3% of mortgages
Management raised loan loss allowances by 0.27 pp QoQ to 2.53% of mortgages, aligning with our estimate
*Red (green) indicates an increase (decrease) in risk level.
Source: FRC
In summary, we believe the portfolio’s risk profile has decreased (one red vs four green signals)
Revenue was up 9% YoY, beating our estimate by 4%, due to higher than expected lending rates
EPS was down 2% YoY due to higher loan loss provisions, but beat our estimate by 5%
Loan loss provisions were in line with our estimate
Source: FRC/Company
*Yields were calculated based on the average share price for the given time period. Note: Class A non-voting common shares are publicly listed, while Class B non-voting common shares are held by management and private investors. In terms of dividend distribution, Class A shares (public investors) rank first, followed by Class B shares. Class A shares will be paid $0.80 per share, before dividends are paid to Class B shares.
Dividends for Class A investors remained unchanged at $0.80/share, implying a yield of 9.4%
Source: FRC Company
Debt/capital declined due to softer originations, and higher repayments
Source: FRC
As interest rates have been higher than expected YTD, we are raising our 2024 EPS estimate by 5%
Source: FRC
We note that the MIC should be able to distribute declared annual dividends ($0.80/share) even if loan loss allowances are raised by 500%
Source: S&P Capital IQ/FRC
Sector multiples are down 3% since our previous report in April 2024, and 28% below pre-pandemic levels
Our fair value estimate decreased from $10.18 to $10.05/share, driven by lower sector multiples, partially offset by our higher 2024 EPS estimate
We are reiterating our BUY rating, and adjusting our fair value estimate from $10.18 to $10.05/share, implying an expected return of 27% (including dividends) in the next 12 months. Key risks include a softer mortgage origination market, and higher default rates. Anticipating lower interest rates, we foresee a potential rally in MIC/financial stocks in H2-2024. Although lower rates can compress profit margins, the resulting economic boost, and potential for higher valuations, will likely have a more significant positive impact.
The following, we believe, are the key risks of the company:
