Callidus Capital Corp (CBL.TO)

An asset backed lender who lends to distressed companies. A lot of their companies may be in bankruptcy, which obviously spooks a lot of people, so it is very easy to put a Bear case on this. He invests on the basis of risk versus return, not sentiment. Had a high in November/14 of about $22, went down to a low of $7. In December, at tax loss selling, it became his largest position. There is a substantial issuer bid backstopping it at $14. There is a normal course issuer bid who has said they are willing to pay as high as $16.50. They just bumped up the dividend 50% giving you a 6.8% dividend yield. There is a potential take out at year-end.

High risk lender and a high risk stock. He owned it just after it came out. The management are not friendly to shareholders. They lend to high risk clients. They looked recently into buying back stock or taking the company private. He sold and is not looking to get back in.

The only listed asset back lender in Canada. When people hear they are lending to distressed companies, it makes them nervous. It is easy to paint a bearish case. It bottomed out at about $7. Just announced a substantial issuer bid. He likes the downside protection. There is $14 of substantial issuer bid for it, and on top of that the CEO has said that if the share price doesn’t reflect the underlying fundamentals, he is going to take the company private at year-end. A newly released independent valuation report indicated it is worth $18-$22. He likes the downside risk. Dividend yield of 5.07%.

(A Top Pick March 11/15. Down 51.48%.) Makes asset backed loans. Quite often who they are loaning to are in some kind of financial distress. Doesn’t think the market fully comprehends how this works. He saw the stock breaking down from a technical standpoint, so he sold his holdings in April at about $16. Has this on his radar screen, because the valuation is cheap.

An asset based lender within Canada, and the only one in Canada which does asset based lending. This is a golden age for them because as the banks tend to tighten up their capital, the marginal borrower who would have got a loan from the ban, has now gone to this one. The quality of their loan book actually improves in circumstances like this.

This looks pretty good. Comparing it to Home Capital (HCG-T), Home Capital has a long track record and are lending on $400,000-$600,000 detached houses with a loan value of two thirds. This one is different in that it is asset based lending with businesses that are probably struggling. They secure certain assets, but he doesn’t know what they are so if they have to liquidate them it is a question mark. There has been a bit of drama, which people don’t need when they are nervous. He wouldn’t be buying this right now.

Long. (A Pairs trade with a Short on Canadian Western Bank (CWB-T). Trading at 52 week lows. Probably the only pure play on asset based lending in Canada. They lend to distressed companies. Trading down mainly because people are concerned about them lending to distressed companies. This is a golden age for a company like this. As banks scale back in terms of tightening up their credit, the marginal lenders that would have got a bank loan, actually come down to someone like this. So the quality and size of their lending has gone up. They are growing at a phenomenal clip. Trading at 1.1X Book and about 6X next year’s earnings. Dividend yield of 7.11%.

A specialty asset backed lender. They offer loans between 15% and 20% to companies that are undergoing high growth, or are somewhat distressed in terms of balance sheet issues. Has been growing its earnings roughly about 100% over the year, year-over-year. Somewhat misunderstood. Loan losses have been extremely low. Net interest margins are very healthy. Management has been very disciplined in not taking losses. Very cheap. Trading at about 7X next year’s expected earnings. Dividend yield of 5.8%.

It is a controversial name. It is in junk bond like territory. They have a good credit team and evaluate closely what they are doing. It has been under pressure because of the type of lending they do (somewhat like sub-prime). People are worried there will be some losses.

(A Top Pick Oct 21/14. Long. A pairs trade with Laurentian Bank (LB-T). Down 38.22%.) This is essentially a lender to distressed companies. That seems to be the thesis on the main Shorts on this name. Trading at about 8X next year’s earnings, which is attractive. Announced a dividend, partly to offset some of the Shorts, and has about a 5.5% yield right now. At these levels, he is willing to sit on this.

They have had it as a past top pick before and has stuck with it. It is a risky stock. The company is a lender to the destressed borrowers. Callidus is owned by the Catalyst Group who are currently in a fight with the West Face Capital Group. He likes what they are doing and will continue to hold.

Sold his holdings. The problem with this company is a little like Amaya (AYA-T). There is a circle of stuff around this company of “he said”, “she said” and innuendo. It is more of a case of disgruntled employees’ kind of stuff. It is not a strong enough company for him to have a passion for. Not even close to something he would want to be in.

A difficult one because of the perception of many quarters in the street who don’t like its methodology in the lending game. They lend to borderline/distressed companies. Management appears to be extremely competent. Its performance numbers to date are excellent.

On one side you have the Catalyst Fund, one of the largest private equity funds in Canada. On the other side is another large private equity fund of WestPhase (?). These 2 are fighting over various issues and have used this company is a battleground. In Nov/14, WestPhase put forward a short case in the form of a proposition. Callidus is a lender to distressed lenders, so it is pretty easy it is pretty easy to paint a bearish scenario. Because of this, the share price has traded off fairly dramatically. Still holding and is comfortable with it.

(Market Call Minute.) This is cheap. They have grown their loan book a lot since their IPO, and the stock price is basically in line with where they went public.