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Counsel Corporation

 

Counsel Corporation is a financial services company operating in residential mortgage lending through its wholly owned subsidiary Street Capital Financial Corporation (Street Capital), which is a non-bank mortgage lenders in Canada. The Company operates in one reportable segment, which is mortgage lending. The Company sells the mortgages that it underwrites to financial institutions. The Company sources its mortgages solely through a network of independent, mortgage brokers with whom it has built relationships.

 

cxschart

 

Recently a mortgage broker told me about the things going on at Counsel Corporation and I was intrigued. Naturally whenever someone tells me about a small cap stock with extreme growth I am going to pull out my phone and look at the numbers. This company is certainly worth a look, as an analyst from Industrial Alliance Securities put it back in June, “this should be a four or five bagger."

 

Counsel Corporation operates in four businesses:

  1. Street Financial - The business of lending mortgages; then selling them to institutions.
  2. Counsel RB Capital - In the business of buying assets during bankruptcy and reselling them.
  3. Knights Bridge Private Equity - Small fund/portfolio of investments.
  4. Real Estate - Counsel owns and develops its own properties and provides real estate property and asset management services to third parties.

 

Comparison to Competitors (most recent annual):

 

compar

 

Counsel Corporation is difficult analyze against competitors because they are in various business lines. But if we compare them against other companies in the small cap mortgage arena, we find that they are little more expensive on a price to earnings basis and a price to book basis. However, they aren't as expensive on a price to sales basis.

 

The trouble with analyzing Counsel Corporation is that a great deal of their returns thus far has been related to income tax shelters from years past. So the earnings are reasonably unpredictable, however the revenue growth has been near phenomenal.


I believe that the revenue growth of Counsel Corporation has been so wild that a PE Ratio of 26, is actually cheap.  On an annualized basis Counsel has had revenue growth of 67% over the last four years and growth of 43.75% in the most recent quarter over quarter.

 

revgrowth

 

Here's where it gets interesting Counsel Corporation has recently been approved to issue mortgage backed securities and they are applying for bank status. I don't know if they will be able to maintain this kind of crazy growth but if they can for a few years, this company is simply put: very undervalued.


From researching this stock, it appears that most analysts love the stock, they love the management, and give it a buy recommendation. In this market, it's difficult to find value stock, so I think it's time to be looking at growth stocks, and this one fits the bill.


However, as with any stock there are some risks to the growth:

  • Funding Risk (not being able to sell off mortgages to financial institutions).
  • Regulatory Risk
  • Interest Rate Risk (narrowing of the spread)
  • Currency Risk (currency exposure from Counsel RB Capital)


Recommendation


I am giving this stock a buy recommendation and I believe it will hit $7.00 by October 2015 and I would give it normal weighting.

Comments   

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Hey now,

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Some getting the bank license may make thinks
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