Pacific Trader: Is Dominion Lending Centres safe as houses?

Mortgage broker franchise network Dominion Lending Centres Group is one of few B.C. residential real estate businesses open to retail investors.

Credit: Courtesy BC Assessment

DLC helps homebuyers find the best mortgage from multiple lenders

The stock: Excuse me while I wipe the coffee off my hoodie after learning what that house down the block just sold for. Few industries have fared so well during the pandemic as residential real estate. Yet for all the property fortunes made in B.C., it’s surprising how few local companies in the sector a retail investor can participate in.

One new entrant to this short list is Port Coquitlam–based Dominion Lending Centres Group (TSXV:DLCG), Canada’s largest franchise network of mortgage brokerages. (Perhaps the current NHL playoffs remind you of its bygone ads featuring Don Cherry.) In the five months it’s been trading, DLCG has added roughly 25 percent to its value. Last we looked, it was changing hands for $3.80.

The drivers: Dominion was founded in 2006 by CEO Gary Mauris and executive vice-chair Chris Kayat. Following a reverse takeover of Calgary-based Founders Advantage Capital Corp. late last year, the company began trading on the TSX Venture Exchange in January. It’s well poised to take advantage of the housing boom, with some 6,000 mortgage brokers in 515 offices arranging $51.5 billion in mortgages for clients in 2020. Revenue for the year was up 17 percent over 2019, to $52.4 million, with net income of $25.6 million. Nice margin, that.

First-quarter 2021 results were even better on a year-over-year basis, though the onset of COVID doubtless put a dent in the 2020 comparables.

The big risk investors should consider is that the long-predicted Canadian real estate crash finally materializes. If you’re not afeared o’ that, there’s the more prosaic possibility of digital disruption in the mortgage industry. (Remember travel agents?) On that front, Dominion has invested in its subsidiary Newton Connectivity Systems, whose digital mortgage submission platform, Velocity, has been adopted by lenders including HSBC Canada and Desjardins Bank.

Word on the street: Desjardins Securities analyst Gary Ho sees plenty of upside for DLCG, citing “robust housing activity,” the ongoing recruitment and reflagging of rival brokerages into the network, “a potential fintech play with Newton/Velocity” (which is already cash-flow positive) and debt reduction through the sale of non-core assets.

Coming and going: Although officially headquartered in Winnipeg, Artis Real Estate Investment Trust (TSX:AX.UN) has seen its decision-making centre of gravity shift west since activist investor Samir Manji, CEO of Vancouver-based Sandpiper Group, seized control of the company in a proxy battle last fall. Now CEO of Artis as well, Manji upped his shareholdings by $6.8 million in May, according to insider filings.