On today’s TSX Breakouts report, there are 23 stocks on the positive breakouts list (stocks with positive price momentum), and 40 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a security that appears on the positive breakouts list with its share price closing at an all-time high on Friday. However, the share price may be due for a pause in the near-term according to analysts’ expectations. It pays its shareholders a monthly dividend, currently yielding 6.6 per cent. The security highlighted today is Atrium Mortgage Investment Corp. (AI-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The MIC (Mortgage Investment Corporation)
Toronto-based Atrium Mortgage Investment Corp. is a mortgage lender that specializes in providing loans outside of the traditional bank lending environment. Loans are offered at annual interest rates principally between 7.75 per cent and 10 per cent. The weighted average interest rate on the mortgage portfolio was 8.5 per cent as at March 31. Loan terms are short, generally one or two-years in length, allowing Atrium to adjust rates within their loan portfolio more frequently. Atrium provides financing on a variety of properties such as residential, commercial, and development projects. Its mortgage portfolio is comprised mostly of first mortgages, representing 81.6 per cent. As at March 31, the majority of loans were focused in the Greater Toronto Area, representing 62 per cent of Atrium’s mortgage portfolio, followed by British Columbia that accounted for 29 per cent of the total mortgage portfolio.
Last week, Atrium completed a convertible subordinated debenture offering, raising $30-million with proceeds earmarked to fund future mortgage loans. Prior to that, in April, Atrium completed a $34.5-million bought deal financing issuing 2.76-million shares at a price per share of $12.50.
After the market closed on April 25, Atrium reported first-quarter financial results that were relatively in-line with expectations. The following trading day, the share price inched higher by 4 cents to close at $12.57. Revenues were $13.4-million, up 11.8 per cent year-over-year. Reported earnings per share came in at 24 cents per share. Atrium’s mortgage portfolio expanded to $655-million, up 3.7 per cent sequentially.
On the earnings call, the President and Chief Executive Officer Robert Goodall provided a cautious outlook stating, “For the balance of 2018, we will be lending carefully. We are cautious because the B-20 rules in combination with rising interest rates have slowed the housing markets across Canada. These B-20 rules stress test purchasers for mortgage eligibility at rates 2 per cent above the contract rate but the good news is the economy is strong, wages are growing, and job growth and immigration are continuing unabated into the GTA and Greater Vancouver markets.”
Atrium is scheduled to reported its second-quarter financial results on Thursday July 26, and will be holding a conference call the following day. The consensus earnings per share estimate is 25 cents.
Dividend policy
Atrium pays its shareholders a monthly dividend of 7.5 cents per share, or 90 cents per share yearly. This equates to an annualized dividend yield of 6.6 per cent. Since 2013, Atrium has increased its monthly dividend each year.
As a mortgage investment corporation, Atrium does not pay corporate tax on earnings. Instead, its earnings are distributed to shareholders as interest income and taxed accordingly. Consequently, Atrium pays a special dividend each year to its shareholders in order to maintain its status as a MIC. On February 28, Atrium paid a special dividend of 4 cents per share to its shareholders.
Analysts’ recommendations
This small-cap stock with a market capitalization of $488-million is covered by three analysts on the Street. Graham Ryding, the analyst at TD Securities, has a ‘hold’ recommendation, a call that he has maintained since he initiated coverage on Atrium in August 2015. Dylan Steuart, the analyst at Industrial Alliance Securities, has a ‘buy’ recommendation on Atrium. Siddharth Rajeev from Fundamental Research Corporation also has a ‘buy’ recommendation.
The average 12-month target price is $13.02, suggesting the security is slightly overvalued at current levels.
Revised recommendations
Last week, Dylan Steuart from Industrial Alliance lifted his target price to $13.50 from $13.
Financial forecasts
The Street is forecasting earnings per share of 97 cents in 2018, rising to $1.01 in 2019. Looking back, reported earnings per share was 94 cents in 2017, 95 cents in 2016, 93 cents in 2015, and 91 cents in 2014.
In recent months, earnings forecasts have held steady for 2018, while expectations have increased for the following year. For instance, three months ago, the consensus earnings per share estimates were 97 cents for 2018 and 98 cents for 2019.
Insider Transaction Activity
Year-to-date, there has not been any buying or selling activity in the public market reported by insiders.
Chart watch
On July 20, the share price closed at a record high.
Year-to-date, the share price has increased 8.1 per cent, outperforming its industry peers, MCAN Mortgage Corporation (MKP-T) and Firm Capital Mortgage Investment Corporation (FC-T), which are up 1.7 per cent, and 2.4 per cent, respectively.
This small-cap security can be thinly traded. The three-month historical daily average trading volume is approximately 48,000 shares. Consequently, the share price can be volatile. To illustrate, on July 20, the share price traded at an intraday low of $13.33 and an intraday high of $13.60, a 2 per cent intraday swing.
The relative strength index (RSI) is at 79, suggesting the security is in overbought territory and may need to consolidate in the low to mid-$13 range before climbing higher. Generally, an RSI reading at or above 70 reflects an overbought condition.
Looking at key resistance and support levels, the next major ceiling of resistance is around $14. Looking at the downside, there is strong technical support around $13, just above its 50-day moving average (at $12.91). Failing that, there is solid support around $12.50, close to its 200-day moving average (at $12.56).
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can
help identify companies worth having a closer look at.
Jennifer Dowty