Q: Dear 5i team.
May I have your analysis of Canadian Banc Corp? What is there structure, how are they achieving 16% returns, and what is the risk/reward.
Many thanks for your help.
May I have your analysis of Canadian Banc Corp? What is there structure, how are they achieving 16% returns, and what is the risk/reward.
Many thanks for your help.
5i Research Answer:
BK is a split share company, offering leverage through Class A shares and more-secure income through preferred shares. It owns six Canadian banks, and current leverage is 43%. The leverage enhances income to Class A shares, but no dividends are paid at all if net asset value drops below $15 (it is $20.49 today). Dividends vary, and were halted for a period of time in 2020 and did decline last year. Five year return on BK is 12.46%. But shares have declined in the past: down 8% last year, down 3.4% in 2020, down 22.7% in 2018 and down 26% in 2015. Despite its bank holdings, we would consider it higher-risk income because of the structure. We are not fans of split share corporations, but this one is at least one of the better ones overall.