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Price and Volume (1-year)
Mortgage advancements were up 46% YoY; repayments were down 41% YoY. As a result, mortgage receivables (net) were up 13% QoQ to $35M
Following the $7M raise post-Q3, we are raising our year-end receivables estimate by 17% to $40M
First mortgages increased, implying lower 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 3% QoQ, implying lower risk. LTV remained unchanged
The average lending rate declined slightly, primarily due to the BoC’s rate cuts. Stage three mortgages (impaired) increased 269% QoQ, and 10% YTD, to 5.7% of mortgages
Management raised loan loss allowances by 0.2 pp QoQ to 2.96% of mortgages. BCF expects to reduce stage three mortgages before the year ends
For conservatism, we are raising our loan loss provision estimates. In summary, we believe the portfolio’s risk profile increased (three red vs two green signals)
Revenue was up 5% YoY, beating our estimate by 3%, due to higher than anticipated lending rates. However, EPS was flat YoY due to higher loan loss provisions, missing our estimate by 7%
Source: FRC / Company
Net income increased 66 bp to 9.69% of mortgage receivables, due to higher lending rates. Dividends for Class A investors remained unchanged at $0.80/share, implying a yield of 8.7%
Debt/capital increased 10 pp QoQ to 19%, due to higher lending activity. We are lowering our 2024 EPS estimate due to higher loan loss provisions
However, we believe the company can comfortably distribute its committed $0.80/share annual dividend
We note that BCF should be able to distribute $0.80/share even if lending rates decline by 2%, and loan loss provisions are increased by 10x. Sector multiples are up 5% since our previous report in September 2024
Our fair value estimate increased from $10.09 to $10.13/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 $10.09 to $10.13/share, implying an expected return of 18% (including dividends) in the next 12 months. Historically, a declining rate environment has proven beneficial for financial/MIC stocks. With the BoC expected to continue lowering rates, yields are set to decline. However, we believe the risk of higher default rates is easing, and the mortgage origination market is likely to gain momentum in 2025.
The following, we believe, are the key risks of the company:
Maintaining our risk rating of 3
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