PMC Commercial (PCC) is one mortgage REIT that's flying way under the radar - no analyst coverage, no quarterly earnings calls. The micro-cap (~$80 million market cap) commercial originator has seen its stock sink 30% in the past two months, falling from $10 in March to just $7 in May. But has PMC's pounding been overly punitive?
Before I get into the first quarter earnings, let's take a look at PMC's business model. The Company that primarily originates first-lien, real estate-collateralized loans to small businesses, primarily in the limited service hospitality industry. PMC has two subsidiaries that act as non-bank Small Business Administration 7(a) Program lenders, which means that the Company is able to originate loans that are guaranteed up to 75% by the SBA. It also means that portions of 7(a) loans guaranteed by the agency can be transformed into AAA rated government bonds and sold on the secondary market.
Obviously, in the current economic environment, PMC's business would be expected to decline, so secular pressure on the stock is not surprising. PMC's fundamentals, however, are telling a different tale.
During the first quarter, the Company originated approximately $17.1 million of loans, but funded $8.9 million in April -- an increase of 56% over the first-quarter run rate. Impairments and provisions ticked up just $10,000 over the prior quarter, so credit metrics on the retained portfolio showed no deterioration. Most importantly, the Company earns taxable income of $0.31/share -- versus a $0.20/share dividend. Since management has indicated that it intends to maintain the $0.20/share payout throughout the year, PMC may end the year with excess taxable income if loan fundings remain strong. If I had to guess, I believe PMC will be able to declare a special dividend of $0.20 - $0.25/share. Such a distribution would lift the annual forward yield to over 13%.
PMC is a small-cap stock and thinly traded, so buyers beware. For those with some money to play with, however, this stock could prove to be an untapped gold mine.
3 comments:
Please note
(1)that 2q08 will be heavily and adversely impacted ($0.5 million based on 4/1/08 resets)by the LIBOR level
(2)that 1q08 salaries and G&A were about $0.5 million below last year's run rate (it's hard to figure how that can continue at that rate absent a significant staff reduction or bonus elimination)
and
(3)that interest expense on the revolver will cost about 85 bps more
So I have trouble getting to the $.20 per share level from continuing ops in 2q08 (my guess would be about $.17 if production is equal to 1q08) much less to contemplate a special dividend.
PCC is lending today at 6.7% with a cost of debt of 6.0% -- no margin there for loan losses much less salaries and G&A and an $.80 annualized dividend.
To me the dividend level now might have some "return of capital" component built in unless conditions change quickly.
This is scary. People investing in this SHOULD get out. I'm not sure if there is time. Many bubbles have burst recently.
- Glenn
Should I Refinance
Oes Tsetnoc one of the ways in which we can learn seo besides Mengembalikan Jati Diri Bangsa. By participating in the Oes Tsetnoc or Mengembalikan Jati Diri Bangsa we can improve our seo skills. To find more information about Oest Tsetnoc please visit my Oes Tsetnoc pages. And to find more information about Mengembalikan Jati Diri Bangsa please visit my Mengembalikan Jati Diri Bangsa pages. Thank you So much.
Oes Tsetnoc | Semangat Mengembalikan Jati Diri Bangsa
Post a Comment