Jennings CapitalAs can be seen, they have initiated coverage. GLTA
COUNSEL CORPORATION 12-Month Target: $2.75
(TSX-CXS $1.94) Risk Rating: AVERAGE
INITIATING COVERAGE
FOUNDATION IS STRONG HEADING INTO 2014
The business: Counsel Corporation operates primarily through its subsidiary, Street Capital Financial Corporation. Street Capital is a prime, residential mortgage lender that utilizes a network of mortgage brokers across Canada to source new product.
Investment thesis: Street Capital has grown exponentially since its 2007 inception, as the Company has taken advantage of: 1) a strong, if moderating, domestic housing market; 2) a shake-up and exit of lenders accessing the broker channel; and 3) higher quality underwriting and Quality Assurance (QA), leading to a lower arrears rate than industry standards.
The net result has seen Street Capital rise to a #3 market share position within the broker channel, and LTM revenue has grown 24%.
Strong growth for 2014 and beyond: We are forecasting EPS of $0.21 in 2014, up from $0.14 forecast in 2013.
CXS is primed to take advantage of increased renewed mortgages in 2014 and 2015. Bypassing broker fees on renewed mortgages should lead to margin upside.
Catalysts: The major catalyst would be successful approval of a Schedule 1 Bank licence, expected by the end of 2014, which would materially enhance the product offerings from Street Capital and operating margins for the Company.
In the near-term, successful divestiture of all non-core business will allow Management and investors to concentrate on the mortgage business.
Valuation Methodology
The target price is based on applying a 13.0x multiple to our 2014F diluted EPS estimate of $0.21.
Recommendation
We are initiating coverage on Counsel Corporation with a BUY recommendation, AVERAGE risk rating and 12-month target price of C$2.75 per share.