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Jun 21, 2017

Home Capital high-interest account balances rebound above $100M, prompting analyst upgrade

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Home Capital Group’s (HCG.TO) high-interest savings account balances rebounded to $112.3 million on Monday, after dipping below the $100 million mark for the first time late last week.

The embattled mortgage lender has been heavily marketing its high-yield financial products in recent weeks in a bid to bolster liquidity lost in a crisis in confidence among depositors. Despite the uptick, high-interest savings account balances remain a fraction of the $2 billion deposited in Home Capital back in March.

The rebound in deposits has at least one Bay Street money manager cautiously optimistic on the company’s recovery. Stephenson & Company President and CEO John Stephenson told BNN the newly-minted board seems to be making early progress rebuilding the company’s ravaged balance sheet.

“The jury’s still out, but it’s looking a lot better. The odds on betting are improving for the company. I’d say they’re doing a good job and things are looking up,” Stephenson said in an interview with BNN Wednesday. “Are they out of the woods? No way. But are they working towards it quickly? Yes.”

Stephenson, who does not own Home Capital, said Tuesday’s announcement the company will use $1.2 billion worth of proceeds from its sale of commercial loans to Kingsett Capital to pay down its onerous line of credit with HOOPP is a further encouraging sign.

“That’s huge: they’ve gone from being a virtual certain bankruptcy to a going concern. I think that’s been a huge shift.”

The improving liquidity at the company is also getting a thumbs up from a member of the analyst community. Industrial Alliance analyst Dylan Steuart upgraded the company to a buy from hold, and nearly doubled his target price to $19 a share early Wednesday.

“Since we last updated our estimates the outlook has brightened considerably,” Steuart wrote in the research report. “We now assume a much slower run-off of the uninsured loan portfolio and more favourable terms on the line of credit starting in [the third quarter.]”