Dominion Lending Centres is well-positioned for growth, Clarus says

A big quarterly beat has Clarus Securities analyst Noel Atkinson feeling even better about Dominion Lending Centres (Dominion Lending Centres Stock Quote, Chart, News, Analysts, Financials TSXV:DLCG). In a report to clients on Tuesday, Atkinson maintained his “Buy” rating while raising his target price to $7.50/share from $5.50/share for a projected 12-month return of 114.3 per cent.

Founded in 1998 with its headquarters in Calgary, Dominion Lending Centres is part of the Founders Advantage umbrella of companies and is Canada’s largest mortgage brokerage with over $51 billion of funded mortgage volume in 2020, operating in every Canadian province and territory.

Atkinson’s latest analysis comes after Dominion reported its second quarter financial results which DLC hit out of the park, according to the analyst.

“We had expected seasonal transaction volume strength in Q2, but we underestimated the contribution of the significant year-over-year increases in average home prices (which equates to higher average mortgage size for many buyers) across Canada,” he said.

Dominion Lending Centres reported $21.3 million in revenue for the quarter, outpacing Atkinson’s $15 million projection and producing a quarter-on-quarter increase of 53 per cent and a year-over-year increase of 87 per cent.

Atkinson points to another Founders Advantage company, Newton Connectivity Systems, as a significant contributor to Dominion’s increased revenue, with Newton (70 per cent owned by Dominion) bringing in $3.6 million in revenue for the quarter, an 87 per cent jump from quarter to quarter and a 151 per cent year-over-year increase.

Meanwhile, Dominion’s Newton Velocity platform brought in $9.2 billion in funded mortgage volume (FMV) in the quarter, nearly doubling its previous output and accounting for 42 per cent of the record $21.9 billion in FMV sent to lenders, with the overall total representing a 63 per cent quarter-to-quarter increase and a double from year to year.

Dominion Lending Centres reported a gross margin of 89 per cent in the quarter, slightly outpacing Atkinson’s initial projection of 87 per cent, while selling, general and administrative expenses came in slightly below forecast. The company also reported adjusted EBITDA of $13.5 million, significantly beating Atkinson’s $7.5 million projection and producing a 63 per cent adjusted EBITDA margin.

“We would like to thank our franchisees and mortgage professionals for their continued hard work over the first 6 months of the year. It has been such an incredible year thus far, which we directly attribute to our industry leading mortgage professionals,” said Gary Mauris, Executive Chairman and CEO for Dominion Lending Centres in the company’s August 24 press release.

“The Q2-2021 results for funded volumes, revenues and Adjusted EBITDA are the highest quarterly financial and operational results in the DLC Group’s 15-year history. Further, our network generated over $35 billion of funded volumes and $21.2 million in Adjusted EBITDA over the first six months of the year.  This is a phenomenal achievement for the DLC Group of Companies,” Mauris said.

Dominion’s second quarter results have prompted revisions to Atkinson’s financial projections going forward, as he now projects the company to produce $24.8 million in revenue compared to his initial $17.5 million projection, with adjusted EBITDA now set at $15.1 million compared to the initial $8.8 million projection.

For 2021 overall, Atkinson now projects $82.1 million in revenue, outpacing his initial estimate of $63.4 million to yield a potential year-over-year increase of 56.7 per cent, while he projects 2022 revenue to reach $87.9 million instead of $71.5 million, a potential year-over-year increase of 7.1 per cent.

Adjusted EBITDA estimates also get a bump up, with Atkinson now projecting $47.8 million in adjusted EBITDA for 2021 compared to $31.9 million initially for a potential year-over-year increase of 89.7 per cent, while 2022’s adjusted EBITDA is now forecast to reach $50.1 million instead of $36.7 million, marking a potential year-over-year jump of 4.8 per cent.

Diluted EPS figures also improve in Atkinson’s projections, as he now expects $0.14/share for 2021 compared to his initial $0.05/share estimate, followed by a jump to $0.26/share for 2022 compared to $0.14/share initially.

Atkinson is projecting 2x EV/Sales for 2021 and 1.9x for 2022, 4.1x EV/adjusted EBITDA for 2021 and 3.9x for 2022, and a price-earnings ratio of 24.4x for 2021 before dropping to 13.4x for 2022.

Atkinson believes Dominion is well positioned as one of Canada’s strongest mortgage broker platforms.

“DLC continues to rapidly add brokers to its platform and concurrently is driving adoption of its Newton Velocity SaaS mortgage management platform by its brokers nationwide,” he said. “The Canadian housing market looks poised to perform well through at least the end of 2021, and DLC tends to run on a modest lag to changes in trend in the overall housing market, so the Company appears well-positioned for growth into 2022.”

Dominion Lending Centres closed Tuesday trading at $3.30/share on the Canadian Venture Exchange, down 20 cents from its opening of $3.50/share. Overall, Dominion’s share price has been up and down throughout 2021, currently up 4.1 per cent for the year and having reached a high point of $4.50/share on May 6.