Report Highlights
- In 2024, mortgage receivables (gross) decreased 1.5% to $863M vs our estimate of $850M. As 84% of AI’s portfolio are floating-rate mortgages, its average lending rate has declined with the Bank of Canada’s cuts.
- Revenue was down 1.3% YoY, missing our estimate by just 0.1%. While EPS fell 10% YoY, it was still 1.4% higher than our forecast, driven by lower-than-expected loan loss provisions.
- Dividends decreased from $1.19 to $1.06/share vs our forecast of $1.04/share. Annual regular dividends were increased from $0.90 to $0.93/ share, effective December 2024.
- Per management’s guidance in the Q3 earnings call, stage three (impaired) mortgages declined significantly in Q4.
- Due to sluggish sector activity, particularly in development and construction projects, the company has been increasing its exposure to lower-risk property types, such as single-family residential and income-producing commercial properties, which should reduce portfolio risk, and yields.
- Since June 2024, the BoC has cut rates six times (200 bp), with the potential for one or two more cuts this year, due to slowing GDP growth, high unemployment, and cooling inflation. Consequently, we anticipate AI’s transaction volumes to rise this year.
- While lower rates have historically boosted MIC/financial stocks, Trump’s tariff threats have negatively impacted both Canadian and U.S. equities across the board. Although tariffs will not directly affect MICs, we believe they could be impacted by a potential tariff-induced recession.
- Given the uncertainties, we are taking a cautious stance on MIC/financial stocks. We expect Trump may reverse or soften his new tariff measures due to their potential negative impact on U.S. consumers and businesses. Should this occur, we would revert to a bullish stance on MICs.
- We believe AI is well-positioned to navigate economic uncertainties, given its strengthened portfolio, featuring more first mortgages, fewer stage-three mortgages, and an enhanced focus on relatively low-risk properties.
*This report and research coverage is paid for and commissioned by Atrium Mortgage Investment Corporation – See the bottom of this report for other important disclosures rating, and risk definitions. All figures in C$ unless otherwise specified.
