JenningsHere's the report. GLTA
COUNSEL CORPORATION 12-Month Target: $2.75
(TSX-CXS $1.78) Risk Rating: AVERAGE
Q1/14: AFTER ADJUSTMENTS, RESULTS IN LINE WITH EXPECTATIONS
CXS released Q1/14 results with diluted EPS from continuing operations of $0.07, an increase from $0.05 reported last quarter and ahead of our expectation of $0.04. A one-time gain of $4.1 million related to the extinguishment of debt tied to the Case Goods business contributed approximately $0.03 to EPS. Excluding the gain, EPS came in at $0.04, right in line with our estimate.
Excluding the debt gain, revenue of $25.7 million was below our forecast of $28.4 million, as margins earned on the mortgages sold in the quarter were below expectations.
However, through its Street Capital subsidiary, the firm sold $1.4 billion of mortgages in the quarter, right in line with our forecast, while growing the mortgages under administration (MUA) to $18.2 billion at quarter end, in line with our forecast again.
While the volumes sold in the quarter were down from $1.6 billion in Q1/13, the indication is that CXS performed well in a tough market, earning an estimated #3 market share position in the broker channel, up from #5 last quarter.
Net gain margin earned on the sale of mortgages of 72 bps in the quarter, while lower than our expectation of 75 bps, is still trending well ahead of the 52 bps reported in the quarter a year ago.
On the conference call, management indicated that mortgage volumes were picking up so far in Q2, as would be expected seasonally.
Valuation Methodology
The target price is based on applying a 13.0x multiple to our 2014F diluted EPS estimate of $0.21.
Recommendation
We recommend CXS with a BUY recommendation, an AVERAGE risk rating and a 12-month target price of $2.75 per share.