Higher rates help & hurt this lender

Article Excerpt

HOME CAPITAL GROUP INC. $14 (Toronto symbol HCG; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 80.3 million; Market cap: $1.1 billion; Price-to-sales ratio: 4.0; Dividend suspended in May 2017; TSINetwork Rating: Speculative; www.homecapital.com) is a mortgage lender serving borrowers who fail to meet the stricter standards of Canada’s big banks and other larger, traditional lenders. The company stands to gain from higher interest rates and stricter rules on mortgage lending at Canada’s chartered banks. It’s likely that many of the customers rejected by the banks will turn to alternative lenders like Home Capital. The company also has a strong history of identifying problem loans early and adjusting repayment terms. That cuts its credit risk: as of December 31, 2017, bad loans totalled just 0.30% of its loans, unchanged from a year earlier. However, rising interest rates has also forced Home Capital to increase the already high rates it pays on GICs and other deposits. That will likely squeeze its profit margins. Home Capital Group is…

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