Shares of Home Capital Group Inc. (TSX:HCG) were up 1.14% heading into the midway point of the noon hour on September 12. On the same day the company held a special meeting with shareholders to consider the approval of an additional equity investment from Berkshire Hathaway Inc. (NYSE:BRK.A). The investment would have increased its stake in Home Capital from 20% to 38.4%. Home Capital shareholders ultimately decided to reject the additional buy from Warren Buffett’s company by a wide margin – 89% voted no.
The decision from shareholders, and the subsequent enthusiasm in the room when the results were announced, seems to indicate that a renewed confidence is building in the company. Home Capital recently dropped its base GIC rates indicating that a recovery in deposit in-flows in underway.
Home Capital stock has been recently weighed by the recent Bank of Canada rate hike and the current conditions in the Greater Toronto Area housing market. The company specializes in lending to buyers who are unable to qualify at banks and other major lenders. With falling housing prices and over-leveraged consumers these become riskier products and the share price has reflected this sentiment.
Berkshire Hathaway would have acquired almost $250 million worth of the stock at a 25% discount if the deal would have gone through. It is clear that Mr. Buffett sees the potential in Home Capital and the Canadian housing market to wade through this difficult period. The stock is experiencing some interesting same day volatility on the news. Currently it is an enticing gamble at its low price.
