Wednesday, 31 March 2010

GMP - Carfinco Is A Buy

Carfinco Income Fund (TSX: CFN.UN)
Units issued: 23.9 million
Units fully diluted: 24 million
Current monthly distribution: $0.02
Q1/2010 special distribution: $0.04


While GMP Securities analyst Steve Boland has been covering Carfinco for the past couple of years, he recently updated his opinion from a Hold to a Buy with a unit target price of $4.00.

According to the report, GMP had taken a conservative approach to Carfinco even though the units were trading well above the last price target of $2.00. Strong quarterly financial results prompted the upgrade. A portion of the report is quoted below.

"Over the past few quarters, we had taken a very cautious stance on CFN despite the stock moving above our target. It seemed that the company had encountered the perfect storm – high gas prices, a decrease in car sales, economic uncertainty and difficult credit conditions. Management responded by tightening lending criteria, slowing portfolio growth, enacting strategies to limit losses and renegotiating the company’s credit facility. The results of management’s actions (in the form of the last two quarter’s results) seem to speak for themselves."

"With the darkest clouds now in the rear view mirror, we turn our focus to the company’s growth prospects. Management has stated that they plan to grow loan receivables by 15%-20% in 2010. Using the 2009 closing gross loan receivable balance of $113.2 million, this would equate to $17.0-$20.0 million of originations (net)."

He's calling for Earnings Per Unit of $0.38 in 2011.

See full report here.................................