Chesswood Group (TSX:CHW) is a financial services company that operates primarily in the specialty finance industry. This includes commercial equipment finance for small and medium-sized businesses. Shares of Chesswood have dropped 66% over the past three months as of close on April 20.
The financial sector boasts the largest weighting on the TSX. Canada’s top banks and financial institutions are expected to be hit hard by the COVID-19 pandemic, and Chesswood is unlikely to be spared. Small and medium-sized businesses will be some of the hardest hit due to the shutdowns. However, Chesswood has expressed its confidence that it can weather this storm.
In 2019, the company achieved record originations of $442 million and its portfolio grew to $1 billion. Management reiterated that the company possesses $150 million of equity, modest leverage with its banks, and significant liquidity and availability in its funding facilities. This means it is well-equipped to handle a pullback in the near term.
On April 20, Chesswood reduced its monthly dividend payout to $0.035 per share compared to its original payout of $0.07 per share. This still represents a strong 12% yield.
Chesswood looks like an attractive buy-low opportunity in late April. The stock last had a favourable price-to-earnings ratio of 4.9 and a price-to-book value of 0.4. Shares had an RSI of 29 as of close on April 20.
This puts Chesswood in technically oversold territory at the time of this writing. Value investors should consider jumping on the stock today.
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