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Price and Volume (1-year)
Mortgage advancements were down 1% YoY; repayments were up 8% YoY. Mortgage receivables (net) remained flat QoQ at $31M; we are lowering our year-end estimate by 2% to $35M
We will incorporate the impact of the ongoing bond financing on our models upon completion. First mortgages decreased, implying higher risk
Increased exposure to AB, and decreased exposure to B.C. as management is observing more attractive opportunities and fewer competitors in AB
Remains focused on single-family units (construction). The average mortgage size was down 7% QoQ, implying lower risk
LTV was up 2.7 pp QoQ, implying higher risk
The average lending rate declined slightly, primarily due to the BoC’s rate cut in June. Stage three mortgages (impaired) decreased QoQ, from 2.3% to 1.7% of mortgages
However, for conservatism, management raised loan loss allowances by 0.2 pp QoQ to 2.73% of mortgages, aligning with our estimate
In summary, we believe the portfolio’s risk profile has decreased (two red vs three green signals)
Revenue was up 3% YoY, beating our estimate by 5%, due to lower than expected mortgage receivables. However, EPS was flat YoY due to higher loan loss provisions, missing our estimate by 4%
Net income increased 1.23 pp to 10.58% of mortgage receivables, due to higher lending rates. Dividends for Class A investors remained unchanged at $0.80/share, implying a yield of 8.9%
Debt/capital remained flat
As mortgage advancements were lower than anticipated in Q2, and given our anticipation of more aggressive rate cuts, we are lowering our 2024 revenue and EPS estimates
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%. Sector multiples are up 8% since our previous report in May 2024, and 23% below pre-pandemic levels
Our fair value estimate increased from $10.05 to $10.09/share, driven by higher sector multiples, partially offset by our lower 2024 EPS estimate
We are reiterating our BUY rating, and adjusting our fair value estimate from $10.05 to $10.09/share, implying an expected return of 21% (including dividends) in the next 12 months. Anticipating lower interest rates, we remain bullish on MIC and financial stocks. Although lower rates can compress profit margins, the resulting economic boost, higher transaction volumes, and potential for higher valuations will likely have a more significant positive impact.
The following, we believe, are the key risks of the company:
