GMP keeps sell rating on Pacific & Western Credit

GMP came out on Friday with some more stark commentary on London, Ontario-based specialty lender, Pacific & Western Credit Corp. (PWC:TSX). Parent corp. to Pacific & Western Bank:

REDUCE
PWC $7.60 Target: $6.20

Q3/07 results – core lending business disappointing for fourth consecutive quarter

. Net income of $0.1 mm or nil on a per share basis, well below expectations

. ROE, margins and asset growth below expectations; YTD ROE, margins and asset growth still well below management’s F07 performance targets

. Value of ownership in Discovery Air estimated to be $0.47 per PWC share at this time; we are not factoring any material gains on future sales of DA shares in our valuation as they are difficult to predict

. Lowering operating F07 operating EPS to $0.14/sh from $0.26/sh; also lowering F08 operating EPS to $0.44/sh from $0.55/sh

. Reducing P/E multiple used in blended valuation to 10.0x from 12.0x; P/B multiple maintained at 1.5x to reflect valuable bank license and proprietary systems

. Target price lowered to $6.20 from $7.90; maintain REDUCE rating

It would appear that not even the fact that Pacific & Western is lending funds at prime plus 3 to a company PWC management controls (see post “Orion Securities on Discovery / Top Aces merger details“, Aug 28-07) was enough to give GMP any confidence in management’s ability to grow earnings in the near term (PWC and Discovery Air {DA.A:TSE} share the same CEO and five directors).

MRM