Home Capital Group Inc. (HCG.TO) could become an attractive takeover target if the company’s stock continues to trade below book value, a research analyst with M Partners said Monday.

“We view Home Capital shares as an investment that provides an exceptional margin of safety, even in downside scenarios for the Canadian housing market,” Andrew Hood wrote in a note to clients.

“As shares trade at a 35 per cent discount to book, we believe there is limited room for price depreciation, while if operations continue to improve we could see a re-rating closer to book value.”   

Shares of Home Capital plummeted in April 2017 after the Ontario Securities Commission accused company executives of making misleading statements to investors, leading to a run on deposits. The lender and former executives later settled with the regulator, Home Capital overhauled its board and senior management, and Warren Buffett's Berkshire Hathaway Inc. stepped in with a $2 billion line of credit, which Home Capital later replaced.

While Hood said Home Capital has recovered from the liquidity crisis on strong footing, it continues to trade at historical lows, which provides an opportunity for the lender to be purchased at hefty discount that could create “significant value” for existing shareholders.  

M Partners on Monday also initiated coverage of Home Capital with a “buy” recommendation and a $25 per share price target.

In its latest quarter, Home Capital reported income fell nearly 20 per cent from a year ago despite a 4.9 per cent rise in mortgage originations.