Repost describing strong investment case IMO the following statement from the fiscal year 2019 MD&A presentation was particularly interesting:
“During FY2018, we entered into credit facilities with two Canadian financial institutions to assist in the financing of our mortgage portfolio. These facilities provided up to $20 million in funding for mortgages, but we are of the view that to truly scale the mortgage stream business, funding of $500 million or more is required.
In late February 2019, we announced a strategic alternatives process to focus on generating improved value for shareholders while continuing our search for scalable mortgage funding. In May 2019, we announced that our strategic alternatives review had not identified a scalable source of mortgage funding, and that as a result, we would halt new capital deployment into all types of streams, including mortgage streams, until a scalable source of capital could be put in place. We believe that it is not likely that such a capital source will become available until canola trade issues with China are resolved, and there is potential that such a capital source will never be found, significantly limiting our growth opportunities.”
Perhaps it had been mentioned previously but this is the first time I’ve read the $500 million minimum for scalable mortgage funding. Input stated before that funding may never materialize. They need to say this for legal reasons. I get it. As I’ve stated many times, if funding never does materialize Input’s cash and cash equivalents are worth almost twice the current market cap so Input stock offers a great investment opportunity regardless.
However, what if Input does obtain funding? Undoubtedly the Chinese trade issues concerning canola will be resolved in 2020. Also, my bet is Doug and Brad continue to do two things. One, they continue to demonstrate that mortgage streams work and support a viable business model. Two, they are sowing the seeds to get the $500 million minimum funding when the time is right.
Today Input makes around $1 million annually in interest gross margin from $20 million in funding for mortgages. Expand this $20 million to $500 million or more, throw in the economy of scale, and the result is Input would make more than $25 million in interest gross margin each year.
So what effect would this have on the stock price? The mere announcement that Input secured scalable funding would drive the stock up significantly. A few quarters of mortgage stream execution and the stock price goes up 3-4 times the current price IMO. Successful execution for a couple of years and the stock price goes up 5-10 times current prices IMO.
Marketing and capital streams have limited potential. Mortgage streams offer a much larger market, less risk, monthly interest, and greater simplicity. Do not discount the possibility of Input reintroducing mortgage streams in a big way in 2020. If Input doesn’t then the stock still offers a low-risk value investment offering a nice dividend. If Input does reintroduce mortgage stream then sky’s the limit.
I’m good with either direction Input goes. For now Input please just keep aggressively retiring shares at less than 60 cents on the dollar for as long as the market allows. 2020 looks bright for Input shareholders regardless!!!