Home Capital Group Inc. could become a highly likely target for a takeover if the company’s stock remains trading below book value, according to M Partners research analyst Andrew Hood.
“As shares trade at a 35% discount to book, we believe there is limited room for price depreciation, while if operations continue to improve we could see a re-rating closer to book value,” Hood wrote in his client note earlier this week, as quoted by BNN Bloomberg.
“We view Home Capital shares as an investment that provides an exceptional margin of safety, even in downside scenarios for the Canadian housing market.”
In the same analysis, M Partners classed Home Capital in its “buy” recommendation category, with a per-share price target of $25.
Home Capital reported an annual shrinkage of nearly 20% in its income during its latest quarter. A 4.9% increase in mortgage originations unfortunately failed to offset the loss.
The company suffered a series of major setbacks starting April 2017, in the wake of statements from the Ontario Securities Commission accusing Home Capital of misleading investors and shareholders.
In June of that year, the company – along with three of its former executives – agreed to reach multi-million-dollar settlements with regulators and investors.
Home Capital subsequently overhauled its management structure, including its board and senior positions. Warren Buffett and his Berkshire Hathaway Inc. also helped revitalize the ailing venture with a $2-billion line of credit.