Steady as she goesNot a barn burner of a Q but I don’t see anything to worry about. Spreads on securitization are down from last year but not likely to go lower so increases in volume from here will show up in earnings. There was a one time gain on a Water Heater portfolio sale but Gerry said he expects this type of thing will recur more or less regularly as it often makes sense for someone to settle the loan, pay the penalty, and pick up the residual income.
Gerry said October was a great month for originations. Note that this is occurring despite the media reporting that the housing activity is weakening in the second half of this year:
https://www.torontosun.com/money/2010/11/06/16003691.html
Equityline visa is starting to grow again. The capital ratios and level of impaired loans are stellar. They’re hiring in all regions.
As usual, the CC is quite informative. Well worth a listen.
Currently heading for better than 5.00 EPS this year which means 75.00 at a paltry 15 PE. I don’t expect to see that PE anytime soon so I’m happy to keep holding and watch the EPS growth.
BMO is a little more pessimistic than me. Here is their summary:
Downgraded to Market Perform; Q3/10 in Line;
Entering Period of Slower Growth
Event
Home Capital reported Q3/10 EPS of $1.31. However, excluding a pre-tax gain
on the sale of a water heater loans portfolio, we estimate EPS of $1.23, in line
with our estimate of $1.25.
Impact
Mixed.
Forecasts
We are maintaining our 2010 EPS estimate (based on current Canadian
accounting) of $4.90 and are reducing our 2011 EPS estimate (IFRS) by
.10
to $5.40 from $5.50. We are also introducing a 2012 EPS estimate (IFRS) of
$6.00. We caution investors that IFRS have not been finalized and the 2011 and
2012 estimates are based on our understanding of the draft proposals.
Valuation
We are increasing our target price by $3.50 to $54.00 from $50.50 to reflect 10x
our 2011E EPS estimate of $5.40.
Recommendation
We are downgrading Home Capital to Market Perform from Outperform. Over
the past year, the stock has appreciated nearly 20%, nearly three times the rate
of the S&P/TSX Financials index. Although we continue to believe that the
company’s focus on the non-prime mortgage market better positions it to deal
with a moderating housing market, we expect the pace of mortgage portfolio
and income growth to slow down from an average of 25% so far this year to 10–
15% over the next few quarters.