# First National (FN.TO)



## doctrine (Sep 30, 2011)

Does anyone follow or own First National Financial (FN.TO)? (whoops, excuse error in title, it's FN not NA -> can a mod change this?)

I have been following them ever since they converted to a corporation in 2011. They always had a yield of 7%, but no growth so I always looked elsewhere. Well, last August they raised their dividend by 4% in spite of stronger mortgage lending rules. And they announced results yesterday. All of their numbers are up across the board, and they are raising the dividend another 8%. Even though the stock has jumped from $16.50 to $17.50, it still yields 8%. They had $1.83 in earnings in the last year, and the new payout ratio is 76% of trailing net earnings. Trailing 12 month P/E of 9.5. Revenue up 35%, net earnings up 56%. 

I know lots of people are skeptical about real estate prices collapsing, but these guys are expecting good results next year despite this. And interestingly, FN despite being a $1B company is not on the TSX Composite, because it's just below the liquidity requirements - still easy enough for an individual investor to get in with $150-200k/traded per day. I really like companies with 7-8% yields, payouts less than 100% of net earnings, and when they start increasing the dividend, it's usually a great opportunity. 

I did pick up 600 shares at $16.82 on Monday. They have a yield of 8.3% after the dividend increase. I think I'll hold on for a while and see how it goes.


----------



## gibor365 (Apr 1, 2011)

I own and planning to addd to NA, not NF. sorry


----------



## liquidfinance (Jan 28, 2011)

Seems to be having a bit of a pull back from the recent run.


----------



## Crusher (Sep 15, 2013)

Thoughts on this company? Seems legit to me. Quarterlies look good. They're making money. I'm clueless about the mortgage business, so I'm just not sure about the risk/reward ratio.

Got in at 21.10 hopefully for the long run.


----------



## doctrine (Sep 30, 2011)

I'm up about 30% since I posted on this back in February. The recent drop is all shorting. There are a few funds that like to short these guys because it's a little more illiquid and they can move the price. They'll push it down 10-20% then cover their positions.


----------



## gibor365 (Apr 1, 2011)

doctrine said:


> I'm up about 30% since I posted on this back in February. The recent drop is all shorting. There are a few funds that like to short these guys because it's a little more illiquid and they can move the price. They'll push it down 10-20% then cover their positions.


That's what i thought... couldn't find any news yesterday ....
doctrine, are you planning to buy more on pullback?


----------



## doctrine (Sep 30, 2011)

No, they are already an overweight position for me, but happy to hold at a 6.5% yield. I would say the pullback is a buying opportunity, still has a good yield, good payout and down 10% from the high. Wouldn't be surprised to see a dividend increase in the next 4-6 months.


----------



## doctrine (Sep 30, 2011)

Year end results out: 2013 EPS of $2.75 a share, 7.1% increase to the dividend. Payout ratio has dropped from 80% in 2012 to just 54% based on the new dividend and last year's EPS. Trailing P/E of 8.4... I am quite pleased with this holding - passes on all of my value investing criteria - good yield, P/E, payout ratio and dividend increases (now seven increases since going public in 2006)!


----------



## gibor365 (Apr 1, 2011)

doctrine said:


> Year end results out: 2013 EPS of $2.75 a share, 7.1% increase to the dividend. Payout ratio has dropped from 80% in 2012 to just 54% based on the new dividend and last year's EPS. Trailing P/E of 8.4... I am quite pleased with this holding - passes on all of my value investing criteria - good yield, P/E, payout ratio and dividend increases (now seven increases since going public in 2006)!


I also pleased  up more than 40% ... better last year perform in my portfolio maybe only LMT, PSX and FC. doctrine, thanks for heads up 
btw, just yesterday wanted to add to my modest position , but missed it


----------



## Killer Z (Oct 25, 2013)

Getting hammered today on the release of Q1 results ......down almost 8%


----------



## doctrine (Sep 30, 2011)

Seems like an overreaction. EPS are essentially in line with last year, and the outlook is very positive. Q1 is normally their weakest and they still just about covered the dividend (35 cents eps vs 37.5 cents dividends) despite some one time hits. Revenue was way up - 19% year over year. The next few quarters should be very strong.


----------



## gibor365 (Apr 1, 2011)

doctrine said:


> Seems like an overreaction.


Before logging into CMF, took a look at Q results .... and couldn't find any justification for so strong pullback  Now thinking if should I buy on dip ?


----------



## Mortgage u/w (Feb 6, 2014)

No reason for recent dip. Good oppurtunity to buy. yield has always been strong and good dividend increases.


----------



## Gabs (May 7, 2014)

Q1 looked solid enough given winter market. Have gone through 2 mortgages with FN; went in on dip.


----------



## Killer Z (Oct 25, 2013)

This one is still getting hit hard. It has now dipped below its 200 day moving average. Yield of 6.50%. Not sure what is causing the plunge, but I like this stock and I am tempted to start a position.


----------



## liquidfinance (Jan 28, 2011)

Killer Z said:


> This one is still getting hit hard. It has now dipped below its 200 day moving average. Yield of 6.50%. Not sure what is causing the plunge, but I like this stock and I am tempted to start a position.


I'm getting tempted to add to my holding.


----------



## doctrine (Sep 30, 2011)

> Yield of 6.50%


Actually, 6.9% as of close. I think it was affected by HCG. HCG was down 4% all day after earnings came out. Earnings were great, but then again it is up nearly 100% in 12 months, so I think it was just profit taking followed possibly by some shorting on both HCG and FN. Both are very solid.


----------



## thompsg4416 (Aug 18, 2010)

doctrine said:


> Actually, 6.9% as of close. I think it was affected by HCG. HCG was down 4% all day after earnings came out. Earnings were great, but then again it is up nearly 100% in 12 months, so I think it was just profit taking followed possibly by some shorting on both HCG and FN. Both are very solid.


Def on my radar... That's one juicy div, low pe, and a solid company. Gonna look hard at this one.


----------



## gibor365 (Apr 1, 2011)

On what news FN went down 6% today? Couldn't find anything.....


----------



## doctrine (Sep 30, 2011)

There isn't any news. FN is occasionally used as a short by a number of firms. They push the price down then cover - it definitely looks that way to me. FN is definitely a buy at the $21-22 level. Even right now it's trading at a 14% discount to the 52 week high. I expect more dividend increases in the next few years - their dividend is up 20% in the last two years.


----------



## gibor365 (Apr 1, 2011)

doctrine said:


> There isn't any news. FN is occasionally used as a short by a number of firms. They push the price down then cover - it definitely looks that way to me. FN is definitely a buy at the $21-22 level. Even right now it's trading at a 14% discount to the 52 week high. I expect more dividend increases in the next few years - their dividend is up 20% in the last two years.


I just was thinking to add more shares, but was scared that any megative news that I'm not aware about....


----------



## gibor365 (Apr 1, 2011)

doctrine, any new thoughts about FN? Fundamentals (P/E, payout ratio etc) looks pretty good, but last 2 Q earnings were rather dissappointing....


----------



## doctrine (Sep 30, 2011)

They still look good. They gave up short term income (placement fees) for securitizing their mortgages, which just means they're spreading out the profit over future years instead of taking it now. Short term impact to earnings, but they look okay - they're reporting a 56% payout ratio discounting the short term costs. The company is still growing revenue and mortgages at a rate of 10-15%/year at a P/E of 10. I like them, and you never know- they could be a takeout target for a big bank, especially if big bank earnings start slowing down (think of Bell Aliant/BCE). Insiders still own a big chunk of the company and could easily make it happen. I still have all my shares I bought a couple years ago (1000), total return 44% over 18 months.


----------



## cashinstinct (Apr 4, 2009)

I could invest in them instead of paying lump sum on my mortgage with them !


----------



## gibor365 (Apr 1, 2011)

_I still have all my shares I bought a couple years ago (1000), total return 44% over 18 months._ I also hold all shares I bought, even though I have much less than you.
Recently I was thinking to increase my holdings positions and FN is one of the candidates... also doctrine, why FN debt is so high?


----------



## HaroldCrump (Jun 10, 2009)

gibor said:


> why FN debt is so high?


Maybe because they are what is known as a _shadow bank_.
They borrow, obtain mortgages, securitize them, and flip them over to the investment banks.


----------



## humble_pie (Jun 7, 2009)

HaroldCrump said:


> Maybe because they are what is known as a _shadow bank_.
> They borrow, obtain mortgages, securitize them, and flip them over to the investment banks.


interesting. hmmmmn.

do u think this could be connected in some way with the numerous derivative-based ETFs offered by horizons betaPro? the counterparty for all of these is, apparently, NatBank.

most people think & even insist that risk ends right there, the only risk is the risk of a big-6 chartered canadian bank going under.

but i've always thought that NatBank is likely slicing & packaging their counterparty obligations, then selling them onwards to other banks that might, in fact, be geographically located anywhere upon the planet.

EDIT: maybe the joke's on me? NatBank is, i thought, first national? but maybe not :biggrin: a thousand apologies if i'm wrong :biggrin:


----------



## thompsg4416 (Aug 18, 2010)

I've been watching this one for a few months.. I also have my mortgage with them and I finally put in a bid this morning. Hopefully it goes through. 

To me it looks cheap.


----------



## HaroldCrump (Jun 10, 2009)

humble_pie said:


> but i've always thought that NatBank is likely slicing & packaging their counterparty obligations, then selling them onwards to other banks that might, in fact, be geographically located anywhere upon the planet.
> EDIT: maybe the joke's on me? NatBank is, i thought, first national? but maybe not :biggrin: a thousand apologies if i'm wrong :biggrin:


National Bank (ticker: NA) is not First National (ticker: FN).
NA is a chartered bank and a member of the CDIC, with the full might of the Canadian federal govt. and the BOC behind it.
FN has none of those.



> interesting. hmmmmn.
> do u think this could be connected in some way with the numerous derivative-based ETFs offered by horizons betaPro? the counterparty for all of these is, apparently, NatBank.


How they are packaging the mortgages will require some forensic accounting, and we may not know the full extent of it.
If NatBank is the primary recipient of these RMBS's (residential mortgage based securities), they are no doubt slicing them and selling them off in turn - no one wants them on their books.

This is an all too familiar game...we have seen this movie before.

To dig deeper into FN, it is required to know who is originating the mortgages, and what type are these.
Are these CMHC insured?

Another thing to look into is whether these originators are independent, or owned by FN one way or another.
If it is the latter, that'd be a huge red flag.

Lastly, how fast is the RMBS turnover rate, and has it increased/fallen recently.
A downtick in the turnover rate could indicate problems moving these RMBS tranches.

Just looking at the current yield - 6.8% - it is important to know where it is coming from.
There is no mortgage term including 10 yr. that pay 6.8% interest.
From what I know, the sub-prime market in Canada is very small.
So what is the source of this yield?

Are they buying a bunch of CDS's and packaging them out in turn?

Or, is their MO to borrow short term (using the commercial paper market), lend long-term (by buying these mortgages), and pocketing the difference, in addition to packaging the mortgages to other banks and institutions as RMBS.

That is the problem with these shadow banks i.e. the lack of transparency.
Their balance sheet has essentially two items - one line item under Assets, and the almost equal amount of long-term debt.


----------



## doctrine (Sep 30, 2011)

First National reports Q3 and 3.3% dividend increase.

http://www.stockhouse.com/news/pres...s-third-quarter-2015-results-increases-common

Not holding anymore (sold at $24), but originations are up 7% and revenue up 7% as well - not a bad result for a pure mortgage player in Canada. Still holding HCG though.


----------



## thepitchedlink (Feb 17, 2014)

bit of an old thread, thoughts on this one again


----------



## doctrine (Sep 30, 2011)

I think it's relatively expensive. You could go with HCG or EQB or even NA at lower valuations. If FN was down at $16-17 (Aug 15 lows) or even lower it would be more compelling.


----------



## Mortgage u/w (Feb 6, 2014)

I hold FN and will continue to hold and add to it. I understand their business model and their profitability is there. As a business perspective, its not a huge company like a bank but of its peers, its a leader. They've been around a long time. 

The return is great, dividends keep increasing and the price is pretty stable. You won't double your money overnight but if you buy/hold and DRIP, it becomes a very interesting and stable investment. Distribution is monthly.


----------



## gibor365 (Apr 1, 2011)

Because of mortgage insurance/qualification changes FN dropped about 20% in just 2 days.... What do you think? Overreaction? Worth buying on pullback?


----------



## doctrine (Sep 30, 2011)

I thought it was expensive at $21. It's still at $26. I thought it was pretty crazy at $30..they're exposed to a single asset class, which is the Canadian residental market, and the new legislation hits their business on all fronts. Challenging times indeed, I wouldn't touch this above $20 for sure.


----------



## gibor365 (Apr 1, 2011)

It will be interesting to see Q3 results at Oct 25


----------



## Mortgage u/w (Feb 6, 2014)

Still a solid company. Took a hit just like all other lenders in the same category because of the new mortgage rules announced.....in my opinion, just a knee-jerk reaction from soft investors. Will go back up - as it currently is. Dividends still strong.

Out of all the mono-line lenders affected by the news, First National IS the company that will get through this and come out on top.


----------



## gibor365 (Apr 1, 2011)

FN recently increased dividends by 8.5%, slight miss on earnings, slight beat on revenue and shares down almost 10%?! Do investors overreact because of HGC issues?


----------



## doctrine (Sep 30, 2011)

Yes, and rightfully so, as the cost of capital for FN could increase as well as a result which would put pressure on margins. I wouldn't want to be in any company in this space.


----------



## gibor365 (Apr 1, 2011)

doctrine said:


> Yes, and rightfully so, as the cost of capital for FN could increase as well as a result which would put pressure on margins. I wouldn't want to be in any company in this space.


But if management will feel any danger, they wouldn't increase dividends by 8.5%, but but 2% or so


----------



## Mortgage u/w (Feb 6, 2014)

gibor365 said:


> FN recently increased dividends by 8.5%, slight miss on earnings, slight beat on revenue and shares down almost 10%?! Do investors overreact because of HGC issues?


Yes, knee jerk reaction for no reason. I wouldn't put FN in the same category as HCG. FN does not use the same means of raising funds. Mortgages are all sold off so they are not heavily leveraged. Their profits are mainly service fees. Commercial division is very strong and residential division is strictly A lending.


----------



## Mortgage u/w (Feb 6, 2014)

Nice rebound. Pretty much covered its recent drop. I encourage you all to view the BNN video on May 1st (and all others for that matter) which have Stephen Smith (co-founder and CEO) explaining the market and FN's model. You can quickly see that FN should not be compared to alternative lenders such as Home Trust and Equitable.


----------



## Mortgage u/w (Feb 6, 2014)

Company results continue to impress. Dividends increase again and stock price got a nice boost. Solid investment.


----------



## agent99 (Sep 11, 2013)

Saw news today on FN Stock Offering (quoted below). Interesting that co-founders hold 71.4% of common stock. Total of about 42.8million shares at $44.60?? Worth $1,910,639,470.???? Billionaires?? I suppose one thing that can be taken from that, is that whatever they do will be for their own benefit. Nothing wrong with that - they own the company. Investors like us would just be along for the ride. Stock has gone from $25.38 to $44.95 this year. 4.37% yield. Hard to buy stocks like this and many others when it look like it is time for a pull back.



> First National Financial Corporation Announces Secondary Offering of Its Common Shares
> Closed the day at $44.60
> Offering price at $42.40
> 
> ...


----------



## doctrine (Sep 30, 2011)

FN getting a little expensive by my books. I like them, but you can buy the big banks at a cheaper valuation. Buy out is off the table at this price. It's why the founders are selling stock again, although not much really.


----------



## Ricehammer4416 (Jan 6, 2021)

doctrine said:


> FN getting a little expensive by my books. I like them, but you can buy the big banks at a cheaper valuation. Buy out is off the table at this price. It's why the founders are selling stock again, although not much really.


I'm curious your take on FN now. I owned this one for a long time sold it once it hit 40 and bought back again about a year ago when it hit 21. I bought some more on the way up so my cost avg is around 32 now. 
At the current price it does still seem expensive although maybe cheap if you compare it to a bank. The yield is under 4.6 but that's no where near the 8 it was when I bought it. Mgmt seems pretty solid and doesn't hesitate to pay special dividends. I've got enough to drip every month so I will probably just sit on it. I wont add at these levels though.


----------



## doctrine (Sep 30, 2011)

FN is doing quite good, but from a valuation perspective seems to be in-line or ahead of the big banks. I like the secondary banks if they are at a discount but why own FN if you can own CIBC or BNS at a cheaper valuation and higher yield, and maybe slower growth. EQB trades at a discount to the big banks and has slightly higher growth, so I would consider that over FN, although it can be pretty volatile and typically sells off hard at bad economic news or rumours of shorting Canadian banks.


----------



## Retiredguy (Jul 24, 2013)

For the Oct 15 div pmt I've got 2 entries in my TDDI - TFSA account. I'm watching/expecting one to be reversed. Anyone else seeing this?


----------

