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Gold/Mining/Energy : Home Capital Group (HCG.B-TSE)
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To: Clement who wrote (3)1/1/1999 7:35:00 PM
From: DaveAu  Read Replies (1) of 65
 
Hi Clement,

I just found this thread. I didn't think anyone on SI would be interested in HCG. This is one of those stocks you buy and forget about because the business is basically boring. It seems to me to be the kind of stock Peter Lynch would have loved.

I've been a shareholder in this company for a couple of years. Actually, I managed to get in very close to the bottom at under 50 cents during tax loss selling so it hasn't been that boring for me.

If you go back about 10 years, this company was into much higher risk lending (second mortgages, commercial loans) and ran into real trouble when the Southern Ontario real estate market collapsed. Today they have a much more conservative portfolio. It is 99.8% first mortgages and 96.7% residential (from Q3 report). Loan losses have been getting smaller each year as the number of pre 1990 loans has diminished.

Their target market is people who don't qualify for bank mortgages (often high earning self employed people). This is a growing niche but one that is too small to interest the banks. HCG has developed an expertise at assessing the risk in this niche. The banks (CIBC and Canada Trust) don't want to offend a customer so they refer them to HCG. The banks don't collect a fee. There is potential to expand this relationship with the banks.

Total market cap of HCG is under 50 million so it's not going to attract any institutional investors any time soon. The market just doesn't seem interested in small caps, especially in a boring business like this. The PE ratio has seemed awfully low compared to the growth rate for the last couple of years. I expect that to continue to be the case and I expect to continue to hold. It's almost always a pleasure to read their quarterly results.

Take a look at the quarterly and annual reports for the last 3 or 4 years and you will see that management has been very conservative in their projections for the future and they have been very conservative in setting up reserves for potential loan losses. I have a lot of faith in the management of this company (I do have one gripe. Why did they waste time and money sending a Christmas card to shareholders?).

Regards,

BJ
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