The investors who piled in to Home Capital Group Inc. (TSX:HCG) over the years have been from all different walks of life. From institutional to retail investors, high yields and the perception of value among Canada’s largest alternative lender have drawn investors seeking exposure to Canada’s booming housing market — specifically, the high-yield lending component of the housing market — to put their hard-earned money into purchasing equity stakes in the once-dominant market leader in Canadian alternative lending.
Retail vs. institutional investors
Institutional investors (hedge funds, mutual funds, pension funds, and the like) are largely considered the “smart money” in the market because these firms typically have resources that traditional “retail” investors (retirees, those who pick stocks for their RRSPs, etc.) do not have.
Institutional investors have teams of analysts, access to a number of industry experts, and do hours upon hours of research into the companies. Retail investors typically do not spend the same amount of resources analyzing.
As such, the market tends to listen to the institutional investors, who have invested in firms such as Home Capital during these precarious times.
Only one large institutional investor left
As I wrote about in one of my previous pieces on Home Capital’s stockholder makeup and the potential for those large shareholders to initiate a “short squeeze,” two large investors held stakes at the time: Turtle Creek Asset Management Inc. and QV Investors Inc. At the time of writing, these firms owned more than one quarter of the outstanding shares and seemed to be bullish on the stock, despite the worries the market had priced in to Home Capital’s stock.
Last week, QV announced they exited their position in the company; in their words, they were “confronting an investment gone wrong.” The company lists its many reasons for exiting the company in a press release, most of which I have touched on over the past months.
While Turtle Creek has remained consistent in their support of the company, should this large investor exit as well, the potential for the stock price to implode increases substantially.
Best loans already hand-picked
The $2 billion credit line handed out by the Healthcare of Ontario Pension Plan (HOPP) is double collateralized, meaning Home Capital put up $4 billion of mortgages as collateral to receive the $2 billion loan. Investors can be assured that HOPP acted in their best interest and selected the best loans of the bunch as collateral, thereby reducing the value of the remaining loan book for investors looking to buy a slice of (or the entire) pie.
Bottom line
Home Capital’s assets are very likely going to be sold to the highest bidder with a number of buyout firms on the prowl for the company’s assets. That said, due to the unclear quality of Home Capital’s loan book combined with the fact that the best loans have likely been set aside as collateral as well as the continued problematic run on deposits, many analysts suggest this company may soon need CCAA protection, and buyout investors may simply be able to “pick up the pieces” left over after HOPP is compensated during bankruptcy proceedings.
I remain bearish on this stock and am losing faith that a way out for Home Capital exists at this time.
Stay Foolish, my friends.
