HOME CAPITAL GROUP INC. $37 (Toronto symbol HCG; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 34.4 million; Market cap: $1.3 billion; Price-to-sales ratio: 2.5; SI Rating: Average) is the parent of Home Trust Company, a federally regulated trust company that specializes in issuing residential first mortgages and credit cards to borrowers who don’t meet the higher standards of larger, traditional lenders.
Home Capital issued $1.3 billion worth of new residential mortgages in the three months ended June 30, 2009. That’s up 82.2% from the prior quarter. The gain is mainly because low interest rates helped improve housing markets in Ontario and Quebec. However, the company issued just $23.3 million of new non-residential mortgages, a 34.5% drop from the prior quarter.
Because of the higher volumes, Home Capital’s revenue rose 7.8%, to $121.8 million from $113 million a year earlier. Earnings jumped 29.4%, to $34.4 million, or $0.99 a share, from $26.6 million, or $0.76 a share.
The company is also benefitting from the federal government’s plan to buy up more residential mortgage loans though Canada Mortgage and Housing Corp. This let Home Capital sell $655.1 million worth of mortgage-backed securities in the latest quarter, up 42.2% from the previous quarter.
Bad loans rose to 1.3% of its total loans, up from 0.7% a year earlier. This figure could rise further in the second half of 2009. However, Home Capital is doing a good job of detecting borrowers who are falling behind on their payments, and working out new repayment schedules.
Home Capital’s 2009 earnings should increase to $3.66 a share, and the stock trades at 10.1 times that figure. The company recently raised its quarterly dividend by 7.1%, to $0.15 a share from $0.14. The new annual rate of $0.60 yields 1.6%.
Home Capital Group is a buy.
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