Topic: How To Invest

Junior Canadian financial stock looks to build on share price rebound

Junior Canadian financial stock looks to build on share price rebound

Pat McKeough responds to many requests for specific advice on stock tips and other questions on investment and the economy from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

This week, we had a request from an Inner Circle member about Accord Financial, a stock that did well for us a couple of years ago. We recommended selling Accord and taking profits in February 2011. Pat looks at the company’s prospects today.

Q: Hello. Just wondering what your thoughts are on Accord Financial. Thanks.

A: Accord Financial (symbol ACD on Toronto; gets most of its revenue from the factoring business in Canada and the U.S. Factoring is the purchase of accounts receivable at a discount. Accord profits by collecting on these receivables, generally at face value.

Besides factoring, Accord provides loans using a client’s assets as collateral. These assets include accounts receivable, inventory and equipment. It also offers purchase order financing (or lending based on valid agreements to purchase goods and services).

Accord was a pick of our Stock Pickers Digest newsletter until we recommended selling the stock at $7.55 in our February 2011 issue.

The shares had traded in a narrow range between $5 and $6 from late 2008 until July 2010, when they jumped over 37% to just under $8. The rise came after the company reported higher revenue and earnings due to a recovering economy.

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Improved results in U.S. lead to higher earnings and revenue

In February 2011, we thought Accord Financial’s growth prospects appeared limited, so we recommended selling Accord and taking profits.

Our Stock Pickers Digest subscribers didn’t miss much after our sell recommendation—the shares dipped down to the $7 level and stayed there until they moved up toward today’s price in late March 2013. It now trades at $8.24.

In the three months ended March 31, 2013, Accord’s revenue rose 4.7%, to $5.9 million from $5.7 million a year earlier. Earnings jumped to $1.2 million, or $0.15 a share, from $833,216, or $0.10. An improved performance at the company’s U.S. operations was the main reason for the higher results. The company’s dividend yields 4.0%.

Accord is facing higher competition in its factoring and lending markets from traditional lenders. In response, Accord aims to keep offering what it feels is faster service, fewer restrictions on loans and more flexible lending conditions.

In the Inner Circle Q&A, Pat looks at Accord’s growth prospects in a fiercely competitive loan environment. He looks at whether the company’s faster service and flexible lending policies can offset the increasing willingness of many banks to offer loans to lower-rated customers. He concludes with his clear buy-hold-sell advice on the stock.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

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