Home Capital Group (Symbol-HCG)

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vrud
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Home Capital Group (Symbol-HCG)

Post by vrud » 08 Nov 2006 20:48

Trying some of Yielder's bottom finishing algorithms I came across HCG which provides alternative mortgage services.
Just wanted to ask if anybody of you guys follow this company.
Their PE ratio slided back to 14, almost no debt and almost 1B in market cap, constantly rising dividend.
However, I think that price/book value of more than 3.5 is a little too high.
Any thoughts are welcome.

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Post by m1ax » 13 Apr 2009 21:23

Anybody on this board following Equitable Group (ETC) ? It's in the mortgage business like Home Capital Group. I ask because a stock I hold, Olympia Financial (OLY.v) has taken an equity stake in both ETC and HCG in the first weeks of 2009.

So far, it looks as though OLY's management was very astute to make such a move. I know Home Capital Group to be a very well managed company, but I haven't seen much about Equitable.

Any comment would be appreciated.
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Re: Home Capital Group (Symbol-HCG)

Post by scampbell » 04 Feb 2010 11:00

FWIW Fabrice Taylor likes HCG:

A foundation with room to grow

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Re: Home Capital Group (Symbol-HCG)

Post by Lazy Ninja » 13 Jul 2015 18:49

Anybody looking at HCG after today's big sell off? It was one of my smaller holdings, and is now my smallest individual holding. I'll need to decide whether to add to it to bring it up to a reasonable weighting or sell out of it altogether. I'm leaning towards keeping it after having recently sold out of Canadian Western Bank and Riocan, but haven't made up my mind yet. There were numerous downgrades of the stock today, but the severity of the selloff seems overdone to me.

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scomac
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Re: Home Capital Group (Symbol-HCG)

Post by scomac » 13 Jul 2015 20:37

I have this one and have owned it for several years trading around a core position. I added a bit this afternoon wisely or otherwise as I feel this is a very solid and conservative business. The furor seems to have to do with a significant drop in mortgage origination, yet management assures that their profit targets will be met. My immediate conclusion is that the stock was relatively cheap before and another 18% cheaper now. It sounds as though this is a short term issue as the company sorts out some of its distribution, but the market is behaving like the world is coming to an end!

I'm notoriously quick out of the gate so keep that in mind. YMMV
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Re: Home Capital Group (Symbol-HCG)

Post by Lazy Ninja » 13 Jul 2015 21:45

Interesting. I'd thought you'd sold it off a while ago on concerns about their debt levels. I know you'd posted since that they'd been paying it down aggressively, however. Was it enough to change your mind?

viewtopic.php?f=33&t=116731&p=518442#p518442

I saw the early announcement regarding mortgage origination volumes and was mildly surprised that management re-iterated confidence in its previously announced targets. Maybe they'll have more to say about it when they report on the 29th. Here's the story for those who may have missed it:

http://finance.yahoo.com/news/home-capi ... 00969.html

Here's what David Baskin had to say on May 12th after the previous quarter's results were a little poorly received:
Had the rap before this quarter alternative lender, and therefore subject to high loan losses and loose credit standards, so people gave it a low price earnings multiple. This quarter, their loan losses were lower than any of the banks, but there mortgage originations were down because they tightened their credit standards, so the market sold off because it didn’t have any growth. Very prudent lenders, and their credit history is excellent. Their growth is good and their return on equity is close to 20%
This sell off still seems a little overdone to me, as the stock dropped considerably lower than various analyst price targets would suggest to me. I think the most damaging was probably from RBC cutting the target from $51 to $39. Before today's open, TD lowered theirs from $53 to $46 and said "Given the limited total potential return to our $46 target price, we are moving to a hold rating." That's now 35% above the current price. Maybe they'll upgrade it back to a buy tomorrow :wink:

ig17
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Re: Home Capital Group (Symbol-HCG)

Post by ig17 » 13 Jul 2015 22:28

Lazy Ninja wrote:I saw the early announcement regarding mortgage origination volumes and was mildly surprised that management re-iterated confidence in its previously announced targets.
Their revenue comes from the interest on the existing mortgages. New originations is a small fraction of their existing book. Missed originations don't hit their immediate targets in a big way.

I can't read the market's mind so I can't explain why it sold off so strongly. I am *guessing* the market is concerned about mortgage fraud. Why did they fire the brokers? Have they uncovered fraud? What is the scope of the problem? How long did it exist? Do they have a bunch of liar loans on their books? Management didn't provide any details in the press release.

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Re: Home Capital Group (Symbol-HCG)

Post by nisser » 14 Jul 2015 00:42

I don't understand the business and while I don't think the real estate in Canada will "crash", I don't really want to be in it any more than I already am with my mortgage + bank stocks. Having said that, an 18% drop just because they missed their earnings? It smells fishy.

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scomac
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Re: Home Capital Group (Symbol-HCG)

Post by scomac » 14 Jul 2015 08:20

Lazy Ninja wrote:Interesting. I'd thought you'd sold it off a while ago on concerns about their debt levels. I know you'd posted since that they'd been paying it down aggressively, however. Was it enough to change your mind?

viewtopic.php?f=33&t=116731&p=518442#p518442
I did exit for a while at much higher levels over a year ago. They have continued to pay down debt and I decided to re-enter earlier in the year when the stock touched under $40 briefly. Perhaps it was a case of sticking to what I know as some of my other ideas over the past year have turned out to be horrendous choices. About all I can say about that is that I have been steadily accumulating capital losses to offset gains taken early in the year! :P
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Re: Home Capital Group (Symbol-HCG)

Post by Lazy Ninja » 14 Jul 2015 10:31

The sell off continues. I'll continue to hold for now. I'll need till the end of the month to get the funds in place for an additional purchase anyway, so I'll wait and see what the company says in its quarterly report. It definitely looks like a compelling valuation here, but ig17's comments are certainly food for thought.

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Re: Home Capital Group (Symbol-HCG)

Post by randomwalker » 30 Jul 2015 20:13

Remember "Xceed Mortgage (Symbol-XMC), is it the next HCG?"
viewtopic.php?f=33&t=1246&p=495079&hilit=xceed#p495079

To stand things on their head,

Home Capital Group (Symbol-HCG), is it the next XMC?

The shorts seem to have been right about HCG it has just taken some time, kind of like value investing in reverse. The question now is does all of this now migrate from the sub prime lenders to mainstream lenders ie the banks where shorts seem to be also placing bets against the housing bubble in Canada.

rich
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Re: Home Capital Group (Symbol-HCG)

Post by rich » 30 Jul 2015 21:16

Sorry but I don"t see any resemblance between the 2 companies. Home Capital remains highly profitable and in my view, they were simply dealing with rogue brokers who broke the rules and were dumped. This was done to maintain the integrity of the company and in no way draws any comparison to the greedy and destructive practices of the Countrywide crowd. If any criticism is due it would be for inadequate surveillance of these brokers but it seems to me they have likely corrected the problem now.
I do own some HCG stock and at this point plan to be a longterm owner.

jay
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Re: Home Capital Group (Symbol-HCG)

Post by jay » 07 Oct 2016 10:36

wow, 40% drop from the $40 highs in April and 55% drop from all times highs in 2014. And they had just raised their dividend in Feb! Trading like they will be going out of business.

Any thoughts?

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Re: Home Capital Group (Symbol-HCG)

Post by brad911 » 07 Oct 2016 10:46

Watching very closely.....Its about another $1 from my target price (last evaluated in April) so if it comes down to that then I intended to re-examine. They have had storm after storm of bad news, but the party could be over and expectations are coming back to more realistic performance moving forward. Just my 2 cents
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Re: Home Capital Group (Symbol-HCG)

Post by SkaSka » 07 Oct 2016 12:19

This was a presentation by Mark Cohodes - an outspoken bear on Canadian RE, so take that into consideration - on Home Capital (along with Equitable Bank and Intertain) that I found somewhere on the internet during my regular peruse of financial news.

File was too large to attach so here is a link to it on Google Drive that you can view.

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Arby
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Re: Home Capital Group (Symbol-HCG)

Post by Arby » 07 Oct 2016 12:30

All of the mortgage related stocks have taken a big hit, due to the recent federal govt changes to the mortgage rules. Genworth (symbol MIC) is a mortgage insurer rather than a mortgage lender (like HCG), so I think MIC is not as risky. MIC looks enticing with a 5.8% yield. MIC's dividend still looks secure, but I wouldn't expect any dividend growth in the foreseeable future.

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Re: Home Capital Group (Symbol-HCG)

Post by nisser » 07 Oct 2016 16:23

I would disagree and say that the mortgage insurer is more risky as they bear the brunt of most of the downside. They're on the hook for foreclosures whereby a lender might just have issues with cash flow and business going forward.

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Re: Home Capital Group (Symbol-HCG)

Post by Hammerer » 07 Oct 2016 22:53

SkaSka wrote:This was a presentation by Mark Cohodes - an outspoken bear on Canadian RE
From the article:
Granted, Mr. Cohodes, 55, used to run one of the biggest U.S. hedge funds specializing in short selling.
He quit the business in 2008 after his fund was hit with steep losses in the market turmoil of the financial meltdown
He specialized in short selling, and ran steep losses in 2008? How was it not his best or 2nd best year ever?

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Re: Home Capital Group (Symbol-HCG)

Post by SkaSka » 10 Oct 2016 14:55

Hammerer wrote:
SkaSka wrote:This was a presentation by Mark Cohodes - an outspoken bear on Canadian RE
From the article:
Granted, Mr. Cohodes, 55, used to run one of the biggest U.S. hedge funds specializing in short selling.
He quit the business in 2008 after his fund was hit with steep losses in the market turmoil of the financial meltdown
He specialized in short selling, and ran steep losses in 2008? How was it not his best or 2nd best year ever?
This article from Fortune answers your question:
But for noted short-sellers Copper River Management, a $1 billion hedge fund based in Larkspur, Cal., the month turned into a perfect storm.

A devastating combination of counter-party failure, sudden regulatory edicts and margin calls conspired to turn the fund's performance on its ear, leading to a 55% loss in just two weeks...

...The recent problems for Copper River began in the middle of last month as Lehman Brothers began to totter. According to Copper River investor and another person close to the fund, Copper River had put on a series of derivative trades with Lehman as its counter-party. As certain stocks dropped in price (as described to Fortune, the derivatives were structured as put options, allowing the fund to sell a stock to Lehman on the belief that it could cover the sale at a lower price at a later date), the trade would become more profitable for the fund.

When it became apparent that Lehman was in serious straits, Copper River unwound the trade and awaited the return of the capital it put up as collateral. But Lehman filed for bankruptcy September 15 and Copper River's money became tied up in the firm's mounting court battles with creditors.

On top of that, as Lehman unwound its own internal hedges to the Copper River trades, its trading desks bought shares of these companies, driving up their prices and leading to losses for Copper River.

That was bad enough, but on September 19, the bottom fell out for the fund. That was when the Securities and Exchange Commission ordered unprecedented restrictions in short sales, including the banning of all short sales of financial companies (and soon expanded to dozens of non-financial companies).

As prices in those stocks shot upwards, Copper River was forced to cover - or buy back - some of its positions at steep losses. The rising stock prices also led to a series of margin calls (demands for additional cash collateral to be deposited in a margin account) from Goldman Sachs, Copper River's prime broker.
Sounds like it should have been profitable, however a black swan event basically wiped out what was probably a well-thought-out short thesis.

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Re: Home Capital Group (Symbol-HCG)

Post by Thegipper » 15 Oct 2016 08:56

nisser wrote:I would disagree and say that the mortgage insurer is more risky as they bear the brunt of most of the downside. They're on the hook for foreclosures whereby a lender might just have issues with cash flow and business going forward.
Couldn't agree more. I have always been leery of this stock for that reason.

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Home Capital /Equitable Group

Post by Thegipper » 28 Dec 2016 18:41

Have been looking at Home Capital and every metric looks really good except one debt/equity of 1.80. It seems that they leveraged to a high level. Compared the metrics with Equitable Group . EQ has better metrics except it's ROE is good but not as good. It's debt/equity is something like .50 and it's return on capital is outstanding. I realize that many are concerned about the mortgages in the Vancouver and Toronto area. I have been advised that neither has a high level of loans in these two markets. Looking at both . I like stocks with very high ROE and ROC both get a lot of checkmarks and high scores on fundamentals. Any thoughts and opinions?

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Re: Home Capital Group (Symbol-HCG)

Post by DenisD » 28 Dec 2016 21:14

Don't believe the shorts betting against Canada’s Home Capital the Globe and Mail
With both impressive quality and valuation characteristics, Home Capital is not The Big Short. It is an attractive buy idea that deserves a place in every diversified Canadian equity portfolio.

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Re: Home Capital Group (Symbol-HCG)

Post by AltaRed » 28 Dec 2016 22:36

They are priced 'low' because changes in mortgage rules squeezes alternative lenders more. Risk level is too high for my taste (I much prefer base hits over the risk of a swing for the fences and gamble on a strikeout vs home run).
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Re: Home Capital Group (Symbol-HCG)

Post by ig17 » 28 Dec 2016 23:05

DenisD wrote:Don't believe the shorts betting against Canada’s Home Capital the Globe and Mail
With both impressive quality and valuation characteristics, Home Capital is not The Big Short. It is an attractive buy idea that deserves a place in every diversified Canadian equity portfolio.
I follow a bunch of very vocal HCG shorts on twitter (chicken farmer et al). The article failed to address a key point in the short thesis. Shorts argue that HCG, a subprime lender, is woefully underreserved against loan losses. The article does mention that historical losses have been very low, but that's looking in the rear view mirror. If you are interested in HCG, these are the questions to do some DD on:

1. Should loan loss provision be higher? By how much?
2. If they are forced to bring it higher, what kind of hit would they take on earnings?

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Re: Home Capital Group (Symbol-HCG)

Post by Shakespeare » 27 Mar 2017 21:39

Home Capital terminates chief executive Martin Reid - The Globe and Mail
Martin Reid, who had been with Home Capital for a decade, will leave immediately and no longer serve on any of boards of directors of the firm or its subsidiaries.

The move comes amid a continuing review of Home Capital and its executives by the Ontario Securities Commission. The regulator said earlier this month that it had served enforcement notices to past and current company management related to the disclosure of an investigation into fraudulent mortgage documents.
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