Counsel Corporation CXSNF

Industrial Alliance

[Hassel]

Highlights Bank License Application Update: Management reiterated its view that it remains confident that it will receive approval of the bank license during 2016. As far as the roll-out of additional products following approval, SCB must remain in line with the three-year targets provided in its business plan with regulators (undisclosed). The concentration will be on acquiring deposits in Year 1 to fund the roll out of an Alt-A mortgage product. The next steps in Year 2 and 3 will be a focus on leveraging the 125,000 client base to additional products (namely credit cards, then potentially a line of credit product). Housing Market Outlook: CEO Ed Gettings remains confident in the status of the overall housing market (while acknowledging that the growth in Toronto/Vancouver will slow from todays elevated levels) and sees few issues in originating $6-8B of new, prime mortgages a year in the near term. Note that the average loan size of SCBs portfolio is ~$375K, avoiding the high value segments of the market. SCB also lends on a sliding scale, lowering the maximum loan-to-value it is willing to lend on more expensive properties. Focus on Future: Management noted that the one-time charges that impacted 2015 ($50M of restructuring charges, $11.9M of fair value adjustments) are a thing of the past, as SCB has finally achieved its goal of being a clean, pure-play mortgage lender. The main earning driver will continue to be an expected large jump in renewed mortgages in 2017. As a reminder, a large portion of the $6.0B of new mortgages originated in 2012 (up 63% from 2011) will be coming due in 2017. Bottom Line We are maintaining our forecasts at this time as the marketing tour largely reaffirmed our outlook for SCB. We continue to forecast a large boost in renewal volumes in 2017 (we assume SCB will renew ~$2.5B of mortgages in 2017) to attain our $0.25 EPS estimate for the year. Valuation By applying an 11.0x multiple to our 2016 EPS estimate, we generate a $2.00 target price. Given the considerable upside potential to the current valuation, we reiterate our Buy recommendation. Rating: BUY (unchanged) Price Target: $2.00 (unchanged) Market Data Target return (incl. div.): Dividend/yield: $0 / 0% Shares outstanding (M, f.d.): 121.9 Market capitalization ($M): Enterprise Value ($M): 52-week range ($): 1.09 - 2.78 Last fiscal year ended: CAD Revisions to Forecasts F15A F16E F17E 163.7 158.2 179.9 Previous n/c n/c 35.2 27.3 38.5 Previous n/c n/c 0.21 0.17 0.25 Previous n/c n/c Key trading multiples F15A F16E F17E 6.5x 8.0x 5.4x Q1 Q2 Q3 Q4 YE Revenue ($M) F2015E 31.0 56.9 41.4 34.4 163.7 F2016E 32.4 47.4 42.7 35.8 158.2 F2017E 36.7 53.6 48.6 41.0 179.9 Adj. EBITDA ($M) F2015E 4.5 15.4 9.0 6.3 35.2 F2016E 2.5 10.6 8.8 5.4 27.3 F2017E 5.3 14.3 10.9 7.9 38.5 Adj. EPS ($)(f.d.) F2015E 0.03 0.09 0.06 0.04 0.21 F2016E 0.01 0.07 0.06 0.03 0.17 F2017E 0.03 0.09 0.07 0.05 0.25 Company Profile Adj. EPS ($)(f.d.) SCB, founded in 1979 is a financial services company operating in residential mortgage lending through its wholly owned subsidiary, Street Capital Financial Corporation, one of the largest non-bank mortgage lenders in Canada. SCB also manages a private equity portfolio that is being harvested to streamline operations to mortgage lending exclusively. Adj. EBITDA ($M) Average weekly volume: 282,277 Currency (unless otherwise indicated): Revenue ($M) P/E (f.d.) Dec. 31, 2015 Last Price: $1.36 Ticker: SCB-T 47.1% 166 166 $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 0 100 200 300 400 500 600 700 800 900 1,000