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Home Capital Group Inc T.HCG

Home Capital Group Inc. is a Canada-based holding company that operates through its principal subsidiary, Home Trust Company (Home Trust). Home Trust is a federally regulated trust company offering residential and non-residential mortgage lending, securitization of residential mortgage products, consumer lending and credit card services. In addition, Home Trust and its wholly owned subsidiary, Home Bank offer deposits through brokers and financial planners, and through a direct-to-consumer brand, Oaken Financial. Its mortgage lending includes classic single-family residential lending, insured residential lending, residential commercial lending, and non-residential commercial lending. Its consumer lending loan portfolio comprises credit cards, lines of credit and other consumer retail loans. In addition, the Company manages a treasury portfolio to support liquidity requirements and invest excess capital.


TSX:HCG - Post by User

Post by HermannHalleron Nov 05, 2021 9:19am
185 Views
Post# 34091119

RBC comments

RBC comments
Canadian Diversified Financials

Return of the Cap(ital), once again. Return of the Cap, watch my flow: OSFI lifts restrictions on share buybacks and dividend increases
 
Our View: Within our coverage, we think OSFI’s announcement that it is removing its restrictions
regarding dividend increases, special dividends and share buybacks for federally regulated financial institutions is most positive for HCG given its substantial excess capital, and incrementally positive for EQB, IFC, POW and BBU. We expect returns of capital, particularly dividend increases, to be measured in that we don't expect companies in our coverage to return excess capital all at once.
 
Summary: OSFI announced, effective immediately, it is removing its restrictions regarding dividend increases, special dividends and share buybacks for federally regulated financial institutions.

Our view regarding the impact for affected companies in our coverage is:
• Home Capital (HCG): the big winner, as valuation does not reflect substantial return of capital
potential in our view. HCG’s Q2/21 CET1 was 22.3% vs. their 13-14% target. This implies ~$13/share of excess capital (30% of HCG’s share price). Assuming a 13.5% CET1 ratio, this could increase ROE by ~500bps (we forecast 11.6% ROE in 2022). In addition, fundamentals and industry backdrop remain positive, yet HCG trades just under 1.2x P/BV. We expect HCG to reduce its CET1 over the next 1-2 years via substantial issuer bid(s); re-instating its dividend, which could attract dividend/incomeoriented investors; share buybacks; and possibly a special dividend. HCG reports Q3/21 results on Friday, November 12 (before market open).
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