Counsel Corp. (CXS-T, $2.26, Strong Buy, Target $3.00)
Analyst: Patrick Kuczynski
pkuczynski@iagto.ca 514-287-9589
Q4/14 Review: What Seasonality? Strong Beat on Fantastic Mortgage Volumes
· CXS reported Q4/14 financial results this morning. The Company will host a conference call at 11am (Dial-in: 1-888-231-8191).
· We expect the stock to be up today on the back of very strong results with mortgages sold of $2.2B vs. our forecast of $1.6B and $1.4B a year ago. This is even more impressive considering that Q4 is seasonally a much weaker quarter and that Street Capital reported $2.3B in Q3 during peak real estate activity.
· Mortgage renewal rates were in the high 70% range for 2014, in line with industry average. We estimate renewal volume of ~$1.6B in 2015, which should drive material margin expansion.
· The Company also announced that unlike a typical bank application process, Street Capital is expected to receive Letters Patent with an Order to Commence Operations all at once if the process is successfully completed.
· Mortgages under administration rose 23% YoY to $21.6B, beating our forecast of $21.2B.
· Revenues were well ahead of expectations at $39.1M, while we had estimated $31.3M, increasing 38% YoY.
· Pre-FMV earnings before taxes reached $5.2M (margin of 13.4%), also beating our forecast of $4.4M (13.9%), vs. $5.5M (19.3%) last year, due to higher than expected mortgages sold. Net gains on sale were 71bps from 93bps in Q4/13.
· FMV adjustments before non-controlling interests came-in at $9.4M (mostly not attributed to CXS shareholders however), vastly exceeding our $3.0M forecast, and even up from $8.0M last quarter, vs. $4.8M last year. KBCP distributions were $17.5M.
· Adj. Earnings attributable to common shareholders from continuing operations came-in at $4.9M ($0.05), also ahead of our forecast of $4.3M ($0.04), vs. $4.8M ($0.05) in Q4/13.