Timbercreek Financial Corp.

Timbercreek Financial Corp. (TSX: TF) is a Canada-based non-banking commercial real estate lender. The company provides shorter-duration, customized financing solutions to professional real estate investors.

Recent Update

Recently, on November 09, 2020, TF announced the appointments of a new Chief Executive Officer and new Chief Financial Officer.

Key Highlights:

• An income play: The company has a strong history of dividend payment, which establishes the fact that the company’s business is resilient in nature and has reported stable cash flows over the years. The stock of TF carries an attractive dividend yield of ~8.11% amid a low interest rate environment.          

Source: Company Reports

• Balanced portfolio: The company’s business is not concentrated across one product-line or any geography, which is a key positive and offers diversification. The group has ~84.1% of income-producing properties and has ~50.1% multi-residential assets. The company follows a disciplined investment approach and would identify its risk-adjusted returns, amidst the current challenging time.                    

Source: Company Reports

Q3FY20 Financial Highlights:

• TF announced its quarterly results, wherein the company investment income of CAD 30.820 million, as compared to CAD 30.567 million in the previous corresponding period (pcp).
• Net investment income stood at CAD 24.064 million, more or less to similar to CAD 24.742 million in pcp.
• Total expenses stood at CAD 4.181 million, higher than CAD 3.768 million, a year ago.
• Income from operations stood at CAD 20.227 million, lower than CAD 21.333 million in pcp.
• Net income and comprehensive income stood at CAD 14.447 million, as compared to CAD 13.914 million in pcp.
• Cash and cash equivalent stood at CAD 69.529 million, while total assets CAD 1,823.017 million.            

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: A further outbreak of COVID-19 might hinder the disposable income of the consumers, which is likely to impact the performance of the company adversely.

Valuation Methodology (Illustrative): Price to Earnings

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

Stock Recommendation: Due to a weak investor’s sentiment, the TF stock corrected ~15% and ~12% in the last nine months and one-year, respectively. However, the stock moved ~7% in the last one week and closed above its 20-days, 30-days, 50-days and 200-days simple moving average (SMA), indicating a bullish pattern. The company reported improved trends during Q3FY20 and witnessed 99.6% of payment collection, which suggest an impressive domestic recovery followed by strong creditworthiness and improved financial capacity of the borrowers. The company expects an increase in its overall transaction activities, which is a key positive. We have valued the stock using P/E based methodology and have arrived at a double-digit upside (in percentage terms). For the above purpose, we have considered peers like Atrium Mortgage Investment Corp, Home Capital Group Inc etc. Hence, based on the above rationale, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 8.51 on November 18, 2020.

TF Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Power Corporation of Canada

Power Corp. of Canada (TSX: POW) is a diversified holding company with interests in financial services, communications, and other business sectors through its controlling stake in Power Financial.

Key Highlights:

• Growing AUM base: Despite market volatility, the company has increased its asset under administration, in the recent quarters, which is a key positive and we believe the trend is likely to continue in the foreseeable future. At the end of Q3FY20, POW reported total assets under management and advisement of CAD 196.4 billion, higher than CAD 188.3 million Q2FY20. The growth was driven by innovative product offerings coupled with the company’s constant emphasis on high-net-worth and mass affluent client segments.                        
• Improved performance from China division: In the recent past, the company’s China AMC has reported strong momentum, despite a fall in the global equity market, which is commendable. The segment contribution to the net profitability was 31% y-o-y higher in Q3FY20, as Chinese equity market continues to significantly outperform and returned to pre-COVID-19 pandemic levels sooner than most global markets.

Chinese Segment Performance (Source: Company Presentations)

Q3FY20 Financial Highlights:

• POW announced its quarterly results, wherein the company posted CAD 14,515 million, as compared to CAD 15,158 million in the previous corresponding period (pcp). The decline was primarily due to a lower income from the change in fair value through profit and loss.
• Total expense stood lower at CAD 13,579 million, decreased from CAD 14,107 million, due to lower total net changes in insurance and investment contract liabilities (CAD 1,513 million versus CAD 2,972 million in Q3FY19).
• Net earnings stood at CAD 898 million, as compared to CAD 971 million in Q3FY19.
• The company reported cash and cash equivalent of CAD 7,747 million, while total assets stood at CAD 501,393 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: Majority of the group’s business is correlated to the global equity markets, and higher volatility would affect the overall performance.

Valuation Methodology (Illustrative): Price to Book based

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

Stock Recommendation:

With the recent acquisition of Personal Capital, the company intends to offer leading-edge digital experience with personalized advice delivered by human advisors and with the higher adaptation of robotics across different businesses, the group is highly poised to deliver improved prospects in the foreseeable future. Furthermore, with the expanding of Mackenzie’s capabilities, POW is likely to offer global private equity, private credit and infrastructure investment solutions to its potential customer base.

At the last traded price, the stock was offering a dividend yield of ~6.05%, which is lucrative considering the current interest rate environment. We have valued the stock using P/Book based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered industry (Insurance) median on NTM basis. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 29.57 on November 18, 2020.

POW Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.