Disclosure: Atrium Mortgage Investment Corporation has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
Loan advancements were up 53% YoY; repayments were down 10% YoY . Net mortgages outstanding were up 2% QoQ to $884M
We believe transaction volumes will pick up in H2-2024, driven by lower interest rates. LTV, duration, the average mortgage size, and exposure to first mortgages remained relatively unchanged QoQ
Lending rates decreased primarily due to the BoC’s rate cut in Q2; we expect this trend will continue over the next 12 months
Increased exposure to commercial development projects while scaling back on residential development projects; management is currently focusing on lower-risk property types, such as single-family residential and income-producing commercial properties
Increased exposure to ON. Stage three (impaired) mortgages increased by 244% QoQ to 8% of mortgages, primarily driven by the reclassification of a $50M mortgage on a residential development project in B.C. from stage two to stage three
As a result, management raised loan loss allowances by 41 bps QoQ, to 3.2% of mortgages. We are raising our 2024 loan loss provision estimate by 13% to $17M (H1-2024: $8M)
Overall, we believe the portfolio’s risk profile has increased due to higher stage three mortgages
Q2 revenue was up 6% YoY, amid higher lending rates, aligning with our estimate. However, EPS was down 20% YoY, driven by higher loan loss provisions, missing our estimate by 5%.
Annual regular dividends remained unchanged at $0.90/share. Debt to capital remained within historic levels (40%-45%)
As a result of higher loan loss provisions, we are lowering our 2024 EPS and dividend estimates.
Our estimate for the 2024 dividend varies between $0.67 and $1.42/share, using various YoY increases in loan loss allowances
Sector multiples are up 5% since our previous report in May 2024, and 23% below pre-pandemic levels
Our fair value estimate decreased from $13.21 to $13.03/share as we lowered our 2024 EPS and dividend estimates, partially offset by the impact of higher sector multiples
We are reiterating our BUY rating, and adjusting our fair value estimate from $13.21 to $13.03/share, implying a potential return of 26% (including dividends) in the next 12 months. Atrium maintains its status as the highest-yielding, and the second largest publicly traded MIC, with a higher percentage of first mortgages, and lower average Loan-to-Value (LTV) mortgages. 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.
Maintaining our risk rating of 3 (Average)
We believe the company is exposed to the following risks:
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