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.
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Price and Volume (1-year)
Portfolio Update
Loan advancements were up 25% YoY; repayments were up 24% YoY. Net mortgages outstanding were down 2% to $863M vs our estimate of $850M. We believe transaction volumes will continue growing this year, driven by lower interest rates
Duration and the average mortgage size decreased, while exposure to first mortgages increased, implying a lower risk profile
Lending rates decreased due to the BoC’s rate cuts. Increased exposure to commercial 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 while sharply reducing exposure to B.C. due to higher B.C. repayments, and more attractive opportunities in ON
As AI’s lending is driven by project merit, not provincial targets, we note that exposure may shift in the coming quarters
In Q4, stage three (impaired) mortgages decreased 64% QoQ to 3.3% of mortgages. We were pleased but not surprised, as management had previously guided that stage three would decline in Q4
Despite lower stage three mortgages, management raised loan loss allowances by 80 basis points to 3.3% of mortgages for conservatism
Overall, we believe the portfolio’s risk profile has decreased, with six green, and two red signals
Financials
2024 revenue was down 2% YoY, amid lower lending rates, coming in just 0.1% below our estimate. While EPS fell 10% YoY, it was still 1.4% higher than our forecast, driven by lower-than-expected loan loss provisions
Dividends decreased from $1.19 to $1.06/share, still beating our forecast of $1.04/share. Annual regular dividends were increased from $0.90 to $0.93/ share, effective December 2024
Debt-to-capital declined 5 pp, due to lower mortgage receivables, and a $29M equity raise in Q4
FRC Forecasts
Amid the looming risk of a tariff-driven economic downturn, we are increasing our 2025 loan loss provision estimate, and reducing our EPS estimate accordingly
Our estimate for the 2025 dividend varies between $0.84 and $1.12/share, as loan loss provisions and lending rates vary
Comparables Analysis and Valuation
Sector multiples are down 5% since our previous report in November 2024, but flat YoY. Our fair value estimate decreased from $13.08 to $12.78/share, due to lower sector multiples, and our revised 2025 EPS estimate
We are reiterating our BUY rating, and adjusting our fair value estimate from $13.08 to $12.78/share, implying a potential return of 28% (including dividends) in the next 12 months. AI's 2024 financials largely aligned with our expectations. Although lower interest rates have historically benefited MIC/financial stocks, current geopolitical uncertainties, trade disputes, and the looming threat of a tariff-driven economic downturn are creating headwinds for the broader Canadian equity market. We believe AI's proactive portfolio adjustments, particularly its focus on lower-risk properties and first mortgages, position it well to navigate these uncertainties.
Risks
We believe the company is exposed to the following risks:
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