Two financial stocks moving in the green as central bank’s interest rate decision looms - Kalkine Media

October 19, 2023 05:45 AM EDT | By Akanksha Vashisht
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Summary

  • Statistics Canada released the inflation data for September, showcasing a slowdown in the rate of CPI increase sequentially.
  • Mainstreet Equity Corp., a real estate financing company, rose 1.25% intraday on Wednesday.
  • Definity Financial Corp., an insurance company, rose 0.29% intraday as at Wednesday’s market close.

As the Canadian markets await the central bank’s monetary policy decision, recent inflation data suggests prices have taken an unexpected turn. As per the latest release by Statistics Canada, the Consumer Price Index (CPI) increased by 3.8% year-on-year in September 2023.

However, the y-o-y CPI increase in September was lower than the y-o-y CPI increase of 4% in August. This indicates that inflation increased at a slower rate in September as compared to its rate of increase in August. 

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The central bank’s interest rate decision is due next week, which may potentially be affected by slowing inflation levels. The central bank utilizes monetary policy, specifically the interest rates, as a tool to combat inflation.

Rising inflation is often indicative of future interest rate hikes, as the central bank aims at reducing the supply of money in the economy in this situation. Higher interest rates typically discourage borrowing and excessive spending in the economy.

Thus, with decelerating inflation, the central bank may withhold an interest rate hike in its upcoming policy decision meeting.

Meanwhile, the S&P/TSX Composite Index fell 1.23% and the S&P/TSX Capped Financial index moved 1.8% lower on Wednesday. However, the following two stocks surpassed the financial sector index as well as the broader S&P/TSX Composite index on Wednesday.

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Mainstreet Equity Corp. (TSX: MEQ)

Mainstreet Equity concentrates on acquiring and renovating mid-market rental apartment complexes. Its primary expertise lies in managing multi-family residential housing within a singular market segment.

Foor Q3 2023, Mainstreet Equity experienced year-over-year growth in all primary operational indicators for the seventh consecutive quarter. Funds from operations rose 32%, while net operating income showed a solid growth of 22%, and rental revenues surged by 18%.

Furthermore, revenue and NOI for the same assets demonstrated significant acceleration, with a respective rise of 10% and 13%. Despite facing inflationary pressures, the company managed to enhance its operating margins, achieving an increase from 61% in 2022 to 63% in 2023.

MEQ Price Chart; Powered By: TradingView

Based on Wednesday’s closing price of CA$139.32, MEQ rose 1.25% intraday and by 17.57% on a YTD basis. MEQ has a P/E ratio of 10.16x.

Definity Financial Corp. (TSX: DFY)

Definity Financial Corp operates as a multi-faceted insurance firm, specializing in property and casualty coverage.

In Q2 2023, DFY’s gross written premium increased by 9%, bolstered by the favorable market conditions in personal property and commercial. Meanwhile, the operating net income for the quarter amounted to CA$64.8 million, a notable increase from the CA$51.1 million recorded in Q2 2022.

The operating EPS for the quarter was CA$0.56 per share, with a trailing 12-month operating ROE of 9.8%. The company's financial position remained robust, with a book value per share of CA$23.42, marking a 12.7% increase compared to the previous year.

Furthermore, with the acquisition of McFarlan Rowlands and the pending purchase of Drayden Insurance, the company anticipates that its insurance broker platform will soon handle approximately CA$900 million in annual premiums.

DFY Price Chart; Powered By: TradingView

DFY stock rose 0.29% intraday and closed trade at CA$38.61 on Wednesday. DFY has a dividend yield of 1.42% and a P/E ratio of 12.64x.

 


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