On today’s TSX Breakouts report, there are 10 stocks on the positive breakouts list (stocks with positive price momentum), and 53 securities are on the negative breakouts list (stocks with negative price momentum).
Interestingly, two MIC’s (mortgage investment corporations), Firm Capital and MCAN, appear on the positive breakouts list. Discussed today is another MIC that is just pennies away from resurfacing on the positive breakouts list - Atrium Mortgage Investment Corp. (AI-T).
Earlier in the month, Atrium reported record financial results for the quarter and year. The company pays its shareholders a monthly dividend with a current annualized yield of 7.4 per cent. Year-to-date, the share price is up over 12 per cent. Based on the average target price, the Street is forecasting a 10 per cent move higher in the share price over the next year.
A brief outline on Atrium is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
Toronto-based Atrium Mortgage Investment Corp. is a mortgage lender that specializes in providing loans outside of the traditional bank lending environment. Loan terms are short, generally one or two-years in length, allowing Atrium to adjust rates within their loan portfolio more frequently. At year-end, 75 per cent of its portfolio was priced at floating rates. As at Dec. 31, Atrium’s mortgage portfolio had a weighted average remaining term of 10.9 months. The weighted average interest rate on the mortgage portfolio was 10.77 per cent as at Dec. 31. Its mortgage portfolio is comprised mostly of first mortgages, representing 92.5 per cent. At the end of the fourth-quarter, the weighted average LTV (loan-to-value) ratio stood at 59 per cent.
In terms of geographical exposures, as at Dec. 31, the majority of underlying properties were focused in the Greater Toronto Area (GTA), representing 69 per cent of Atrium’s mortgage portfolio, followed by the Greater Vancouver Area. B.C. accounted for 25.5 per cent of the total mortgage portfolio, non-GTA in Ontario represented 4.5 per cent, and exposure to Alberta stood at 1 per cent.
Quarterly earnings results
On Feb. 14, Atrium reported better-than-expected fourth-quarter financial results and record earnings per share. Revenues were $23.16-million, up 47 per cent year-over-year driven by a larger mortgage portfolio and higher interest rates. Earnings per share came in at 30 cents, up 20 per cent year-over-year, topping the consensus estimate of 25.5 cents. Atrium’s mortgage portfolio expanded to a record $866-million, up 1 per cent sequentially. At year-end, just over 1 per cent of its mortgage portfolio was in default. The following trading day, the share price rallied nearly 4 per cent.
On the earnings call, founder, chief executive officer, and president Rob Goodall remarked on the housing market and its potential implications for Atrium, “The key to a housing and commercial real estate recovery is a reduction in inflation and interest rates. Fortunately, five and 10-year bond yields have reduced somewhat to 3.28 per cent and 3.11 per cent, respectively, [which] would suggest that the bond market believes that inflation will drop. Once interest rates do drop, the GTA and Vancouver market should recover quickly for the following three reasons: number one, the structural housing shortage in both cities, which can’t be remedied anytime soon, number two, immigrations at record levels and the federal government intends to increase the immigration target to 500,000 people annually in 2025. Ontario and BC, by the way, attract 44 per cent and 15 per cent of all new immigrants to the country. And the third point is that apartment and condominium rental markets continue to be exceptionally strong in the GTA and the GVA.” He added, “So to summarize, Q4 [fourth quarter] was an incredible and record-breaking year for Atrium. The large special dividend of $0.23 is almost three times our previous largest special dividend. The arrears level is still low with only two commercial loans and one small single-family loan in default. The portfolio is showing resiliency in the face of weak market conditions. Our foreclosed assets are performing at their best levels ever, and I expect that they will continue to perform well through soft economic conditions. We will probably look at selling these assets sometime over the next couple of years. Having said that, I continue to think the 2023 will be a challenging year for the real estate industry as a whole. Today’s high interest rates will continue to put pressure on real estate values and strained borrowers’ abilities to service their debt. In my opinion, a drop in inflation and interest rates is the most important change needed to stabilize the market. Until investors and developers feel assured, that industry rates are beginning to decline, many will choose or be forced to stay on the sidelines.”
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 7.4 per cent. Atrium has maintained its monthly dividend at this level since early 2018.
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 Feb. 14, Atrium announced a special dividend of 23 cents per share to its shareholders of record on Dec. 30, 2022.
This small-cap stock with a market capitalization of just over $500-million is covered by three analysts on the Street.
· Laurentian Bank’s Frederic Blondeau has a ‘buy’ recommendation and target price of $12.50.
· TD’s Graham Ryding has a ‘buy’ recommendation and target price of $13.50.
· Sid Rajeev, the analyst at Fundamental Research, has a ‘buy’ recommendation and target price of $13.88.
The Street is forecasting earnings per share of $1.11 in 2023, up from $1.06 reported in 2022, and $1.13 in 2024.
In recent months, the 2023 earnings forecast has increased. To illustrate, four months ago, the consensus earnings per share estimate was $1.03.
According to Bloomberg, the stock is trading at a price-to-earnings multiple of 10.9 times the 2023 consensus estimate, below its five-year historical average of 13.2 times. According to Refinitiv, the stock is trading at a price-to-book ratio of 1.1 times the 2023 consensus estimate.
According to Refinitiv, its industry peer, Firm Capital Mortgage Investment Corporation (FC-T) is trading at a forward P/E multiple of 11.7 times the 2023 consensus estimate, and at a price-to-book of 1.06 times. Another mortgage lending peer, MCAN Mortgage Corporation (MKP-T) is trading at a forward P/E multiple of 8.4 times, and price-to-book of 1.09 times.
The average 12-month target price is $13.29, suggesting there is 10 per cent upside potential in the share price over the next year.
Insider transaction activity
Year-to-date, there has not been any trading activity in the public market reported by insiders.
In 2022, Atrium’s share price came under tremendous pressure with the Bank of Canada hiking interest rates, cooling the housing market. The stock price declined over 23 per cent.
With the overnight rate appearing to have potentially peaked, shares of Atrium are recovering. Year-to-date, the share price has increased over 12 per cent. Its peers, Firm Capital Mortgage Investment Corporation and MCAN Mortgage Corporation, are up nearly 14 per cent and 8 per cent, respectively.
Looking at key technical resistance and support levels, the next major ceiling of resistance is between $12 and $12.50. After that, there is overhead resistance between $14 and $14.75. Looking at the downside, there is technical support around $11, near its 50-day moving average (at $11.08). Failing that, there is strong support around $10.30.
This small-cap security can be thinly traded. The three-month historical daily average trading volume is approximately 82,000 shares.
The stock began trading on the Toronto Stock Exchange in 2012 so its trading history is limited.
ESG Risk Rating
Looking at risk providers Sustainalytics, MSCI, and Bloomberg, Atrium currently does not have an ESG (environmental, social and governance) risk score by any of these providers.
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 indices 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.
This report should not be considered an investment recommendation.