Canada has a unique mortgage market that requires holders to refinance after every five years. If you're an investor looking to capitalize on this opportunity, one little-known company offers the perfect way to do so.
Pineapple Financial Inc. (NYSE American:PAPL) is a digital mortgage company focused on providing Canadian mortgage brokers with the systems, tools and technologies they need to provide home buyers and mortgage seekers with a more digital customer experience.
The company was established about 8 years ago after realizing that the real opportunity was in digitizing the old and archaic mortgage origination industry, which was very manual and paper-heavy.
The solution was to build a full end-to-end cloud enterprise management platform for everything from lead inception to customer marketing automation, profile building, segmentation, data collection, document collection, SWOT analysis, compliance, payroll, and retention, all within a single ecosystem and environment.
Pineapple is also the first Canadian company to integrate artificial intelligence and data analytics into the mortgage origination process, making it well positioned to capitalize on the refinancing cycle.
That is because the company’s technology is designed and geared towards Canadian mortgage brokers, which is a very fast-growing channel of origination. A quick look at half of all mortgages that Canadians originate reveals that over 75% are first-time home buyers, and over 70% of buyers under the age of 45 prefer to utilize a mortgage broker.
The company expects that these growing demographics will prefer using digital channels such as Pineapple’s platform, which is reaffirmed when we look at other areas of the world. For instance, in Australia, Europe, and the US, over 80% of mortgage originations are done through the mortgage broker channel. This means that Pineapple has plenty of room to grow as the market organically grows in Canada.
To put the opportunity in context, consider this: There is about $2.2 trillion of outstanding mortgage debt in Canada.
What makes the Canadian mortgage market unique compared to other markets is the fact that it doesn't offer long-term mortgages. Instead, it has 1–5-year terms, after which the mortgage will come up for maturity or renewal.
This is where Pineapple comes in, as it will have the opportunity to reservice that customer, and these continually servicing opportunities with each cycle provide the company with tremendous potential to continue growing revenue and the business.
The exciting thing is that 73% of all current Canadian mortgages will be coming up for maturity within the next 3 years or by the end of 2027, which translates to about $1.6 trillion of potential originations.
In addition to that, Canada has the fastest-growing population in the world.
The country grew its population by 3.7% in the last year and will be welcoming 1.2 million immigrants in the next 12 months. Statistically, 80% of new immigrants in Canada will purchase a home within 3 years of arriving. Now couple that with about 4 million Canadians who are entering the home buying stage of their lives, and it's clear to see that Pineapple Financial Inc. (NYSE American:PAPL) has a tremendous growth opportunity.
Right now, Pineapple is funding about $2.5 billion per year in mortgage originations out of a potential $700–$800 billion per year of originations, which further reaffirms just how significant the company’s potential for growth and scaling is.
Pineapple’s unique business model gives it a number of competitive advantages over existing mortgage broker products. First, it has chosen to digitally and technologically enable a pre-existing distribution channel like mortgage brokers that already have embedded relationships within various communities across the country. This drastically cuts down on acquisition costs and further reduces the time needed to build volumes.
Additionally, Pineapple has built a fully integrated system, whereas a lot of solutions on the market are focused on building solutions to one piece of the mortgage processing lifecycle. Pineapple end-to-end solution means that all areas of the mortgage origination processing life cycle are housed within one ecosystem, so the data entry, data integrity, and efficiency of the information are much more accurate, concise, and usable.
This business model has been validated by the market, as illustrated by the fact that it became profitable within the first four years of its operations.
Investors went on to reaffirm their confidence in the company after Pineapple closed its first financing in April 2021. At that time, the company had about 100 brokers on its platform, funded just under $1 billion per year, and was only operational in Ontario. The company had tremendous buy-in from the industry and successfully raised $9.3 million to begin scaling the business.
Since then, the company has expanded to every province across Canada, is fully coast-to-coast, has over 700 brokers on the platform, and is funding over $2.5 billion in mortgages.
In November last year, Pineapple Financial Inc. (NYSE American:PAPL) IPO’d, raising $3.5 million and listing on the NYSE. At the same time, the company brought in a strategic long-term capital partner who would be focused on ensuring that the company is capitalized both in the short term and in the long term by being an anchor institutional investor.
Pineapple has a market capitalization of about $7.2 million, which appears to be undervalued by the market considering the revenue and efficiency of the business. We believe that the company has significant upside potential once more investors recognize the multiple tailwinds driving growth.
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