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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Price and Volume (1-year)
Portfolio Details
Mortgage advancements were up 214% YoY; repayments were up 87% YoY. Mortgage receivables (net) were up 20% QoQ, to a record-high of $52M
First mortgages increased 0.6 pp QoQ to 98.8%, 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 up 13%, implying higher risk. LTV remained unchanged
The average lending rate declined, primarily due to the BoC’s rate cuts. Stage three mortgages (impaired) decreased 33% QoQ to 2.6% of mortgages. In summary, we believe the portfolio’s risk profile decreased, driven by higher first mortgages, and fewer stage three mortgages
Financials
Revenue was up 50% YoY, beating our estimate by 15%, due to higher than anticipated mortgage advancements. EPS was up 13% YoY, beating our estimate by 2%, though growth was tempered by interest expenses from the recent bond financing
Dividends remained unchanged at $0.26/share, or 11% of shareholders’ equity
Dividends for Class A investors remained unchanged at $0.80/share, implying a yield of 9.13%.
Debt/capital increased 6 pp to 20%, due to higher lending activity. In Q1, the company raised an additional $4.75M as part of its ongoing $50M unsecured bond financing, bringing the total raised to $11.75M by quarter-end
FRC’s Projections and Valuation
As Q1 exceeded expectations, we are raising our 2025 EPS estimate by 2% to $1.06/share. We believe the company can comfortably distribute its stated $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 increase by 200%
On average, MICs and banks are expected to report 4.2% revenue growth this year vs 0.9% in 2024. Sector multiples are up 5% since our previous report in April 2025
As a result, our fair value estimate increased from $9.92 to $10.20/share
We are reiterating our BUY rating, and raising our fair value estimate from $9.92 to $10.20/share, implying an expected return of 26% (including dividends) in the next 12 months. BCF delivered record Q1 revenue and EPS, driven by strong loan growth, and a healthier mortgage portfolio with fewer impaired loans. Despite ongoing economic challenges, and a slowing housing market, we believe the MIC’s increased focus on first mortgages has lowered risk. With potential rate cuts on the horizon, BCF is well-positioned to maintain its 9.13% yield this year.
Risks
Maintaining our risk rating of 3
The following, we believe, are the key risks of the company:
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