Alternative lender Home Capital Group’s shares have regained valuable lost ground ever since its near-collapse roughly two years ago.
This year alone, Home Capital saw its performance boosted by more than two-fold, becoming the fourth-best performing stock on the Canadian S&P/TSX Composite Index.
“The stock surged as much as 14% on Wednesday, the most in a year, after the Toronto-based lender reported third-quarter profit on Wednesday that beat the highest analyst estimate and said it plans to buy back $150 million worth of shares,” Bloomberg reported earlier this week.
Home Capital, as well as fellow alternative lender Equitable Group Inc., benefited from the accelerated pace of mortgage growth, which has been spurred by the spring season’s home-buying spree. Another contributing factor was stronger home sales in major markets like Toronto and Vancouver.
Much improved shares of alternative lenders can be attributed to positive mortgage growth prospects and better market situations especially in the GTA, CIBC analyst Marco Giurleo wrote in a November 1 note to clients.
Together, these conditions drove Giurleo to upgrade Home Capital to “outperformer” status, particularly since the company appears to be set on the “path to double-digit profitability.”
Earlier this year, Home Capital announced plans of offering residential mortgage-backed securities on a regular basis. CFO Brad Kotush said in late September that the lender is considering issuing two RMBS deals a year, after Home Trust previously raised $425 million in non-prime loans.
In mid-2019, the Bank of Canada indicated that it is considering boosting the market for RMBS, especially since only around 0.1% of the nation’s mortgage debt is in RMBS deals.
“By starting this sustainable program of RMBS issuance we may, with the support of other industry participants, help to establish a private RMBS market in Canada,” Kotush stated, as quoted by Bloomberg.