Opinions
Jordan Zinberg
Olympia Financial Group
OLY-T
BUY
Jan 15, 2024
Stock price when the opinion was issued
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A small trust company operation. Have done quite well in Calgary. Just declared a special dividend. If you buy this stock now, you are not going to get special dividends all the time and you are back into a relatively illiquid stock. The stock will probably go right back to where it was trading before, once the dividend is paid. If you buy you better be ready to hold it for a long time.
Very well run, kind of niche financial company. Very sharp management that knows how to make money. They paid a dividend, which may explain the drop in the share price. Not a huge growth business, but pays a regular dividend of around 7%. If you are looking for income, you are well served.
Business is certainly good.
OLY has strong insider ownership, good growth in earnings, solid cash flow and a good balance sheet.
Revenue rose 47% last year, with interest and trust income up more than 100%.
Its small size adds risk, and no analysts cover it.
But the dividend has doubled since 2017, it is cheap, and shares are up 53% in a year.
It is hard to argue against it right now.
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Higher interest income would definitely be a tailwind for OLY’s business as interest income flows straight to the bottom line. For example, in FY2023 interest income grew 100%, and now accounts for around 50% of the company’s total revenue. In a low interest rates environment, the business may not do sensational, but would likely still be just fine. In the past 10 years, interest rates were quite low, but OLY’s operating results were still quite healthy and consistent. We may not consider OLY as a compounder as the company did not reinvest much of its earnings to grow, but we would certainly consider OLY as a high-quality, capital light business that would consistently raise dividends over time. We would be comfortable owning OLY over the long term.
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After recently reporting a 69% increase in net income, we select OLY as a TOP PICK. The Canadian based financial company trades at 11x earnings and supports a 79% ROE. It has been prudently using some cash reserves to retire debt. It pays a good dividend, backed by a payout ratio under 60% of cash flow. We recommend setting a stop-loss at $83, looking to achieve $126 — upside potential of 22%. Yield 5.7%
(Analysts’ price target is $126.64)OLY’s earnings are quite sensitive to the movement of interest rates, with rates coming down, earnings could be under pressure in the near term. This sensitivity to interest rates is inherent and quite common among financial companies. In the near term, OLY’s earnings could face a headwind due to a decrease in rate and, therefore, limited prospect of significant dividend growth. That being said, OLY has done really well over the last interest rate cycle. Also, the company’s service revenue is more predictable. This is an inherent risk of investing in financial companies. OLY is a small cap and quite under the radar to most investors, but its management track record is really impressive, we like the name here and would be comfortable to hold over the long term.
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It is very ill-liquid so he hasn't bought it. However for a small retail investor it has great growth and good valuation along with a management team that has done well. Canadians have a wide array of larger cap financial stocks to choose from and tend to forget the small cap financials so it is good to find these specialty lenders. It is up 36% in a year.