ECN Capital Corp.

ECN Capital and Freddie Mac Partner to Provide Affordable Housing Solutions: ECN Capital Corp. (TSX: ECN) is a financial business service provider that originates, structures, and manages financial products and provides advisory services for financial institutions. As on 30 July 2020, the market capitalization of the company stood at ~CAD 1.16 billion. The company has announced that Triad Financial Services, Inc. has been approved as a qualified mortgage seller and servicer by Freddie Mac to support its mission to empower homeownership. The partnership with Freddie Mac will allow Triad to scale its real property lending solutions to meet the affordable housing needs of the nation.

Quarterly Performance (For the Period Ended 31 March 2020): During the first quarter ended 31 March 2020, ECN Capital reported adjusted EBITDA of USD 27.7 million and a YoY growth in adjusted net income to USD 0.06 per share, up from USD 0.05 per share for the same period last year. In the same time span, the company managed and advised total earning assets of USD 33.6 billion and witnessed an increase in originations from USD 419 million in 1Q19 to USD 509 million in 1Q20. During the quarter, the Board has authorized and declared a quarterly dividend of USD 0.025 per outstanding common share which will be paid on 30 June 2020.

Key Risks: The company is exposed to a variety of risks and uncertainties, including improper access to adequate funding sources, less acquisition opportunities and transition to an asset management business, risks related to the equipment finance industry, economic factors, etc.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Despite the softer market conditions due to the outspread of COVID-19, the company reported strong Q1 earnings and showed the resiliency of each of its businesses. ECN continues to expect strong growth in earnings in FY20. The stock of ECN gave a return of 21.77% in the past three months and a return of over 24.61% in the last one month. The stock is trading slightly above the average of its 52-week trading range of CAD 2.68 to CAD 6.20. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and have arrived at a target price, offering an upside of lower double-digit (in percentage terms). Considering the current trading levels, attractive returns in past one month, and the financial resilience of the business despite the global pandemic, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 4.81, up by 1.9068% on 30 July 2020.

ECN Daily Technical Chart (Refinitiv, Thomson Reuters)

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