a different chw seems like emergingso many cdn investors chasing theme stocks (weed, crypto, ev, etc), small cap opportuntiies in canada get missed. especially when underlying story is changing for positive. chw is one of those that could be a multi bagger if mgmt stay disciplined, but so far so good.
i owned chw years ago under old management as income vehicle. always have been good underwriters of credit, but seem like didnt' work to better address funding, instead were beholden to bank lending syndicate. loan book was riskier and realized interest margin was always very high. as consequence, didn't grow loan book as paid out earnings as dividends and lending syndicate likely always worried about risk of lending book. limited flexibility to grow lending book. consequently, traded around 0.9-1x book and holders happy to pick up big yield. not interesting to new investors or institutions. old mgmt had been in charge for 100 years and stuck in their ways. not dissimilar to a variety of small cap lenders.
over past 2-3 yrs, starting with old management, moved more toward prime credits, and now new management is seeming to aggressive address funding and treasury management. securitiizations (one of which under old mgmt and two under new) allows diversification away from dependence on banking partners. performance of securitizations owing to good historical underwriting process and movement to more prime credits. so interest margin % realized falls due to more prime credits, but chw able to offset this thru funding and treasury management (securitizations helps lower cost of funding). yet even if slightly lower net margin % realized, volume growth in lending book more than offsets this (at lower risk, due to prime credit mix). and diversification of lending book, in terms of economic sector exposure and geographical breakdown, seems getting better. latest announcement for non mortgage residential in canada another new avenue. this whole picture points to lower absolute risk around biz model which attracts new lenders and shareholders. i think this is yet to be realized by investment commuinity in any meanningful way.
so biz has now the flexibility to grow due to broadening funding mechanisms. as chw gets bigger, in terms of mkt cap and lending book, flexibilty to look at bigger inorganic deals which could be "bolted" onto existing infrastructure, increases.
if managment maintains good underwriting discipline thru use of oversight and technology, no reason why lending book cannot continue to grow and earnings leverage realized cud be big. even with 40% cap on dividends/earnings, still a big number for dividend at +$2 billion lending book at some pt in future. maybe explains why ceo has bought so much stock (~1 millino shares) in the past 13 months as has edward sonshine...