Currently have a $25.00 target. GLTA
EQUITY RESEARCH
Guidance Our Conclusion
EFN is trading below its recent highs, but we don’t think anything has
changed with the fundamental outlook. We expect the company to post
strong Q1 revenue growth with stable operating margins, supporting 2024
guidance (perhaps with a chance that guidance is revised higher). The stock
is trading at 13.5x P/E (2025E consensus), not that different from the five-
year average of 13.0x despite a fundamentally improved business. We would
recommend adding to EFN ahead of the quarter.
Key Points
Updating estimates for USD reporting: EFN will start reporting in USD with
Q1 results. Our Q1 EPS estimate of $0.24 compares to $0.24 last quarter
and $0.23 in Q1/23. Our estimate is in line with consensus. Our full-year
2024 estimate of $1.05 is within the guidance range of $1.05-$1.09 and
implies growth of 9%.
Expecting a big year for originations: Management guidance suggests
that 2024 should be the best year for originations in the company’s history.
Supply chain issues have eased; the backlog remains elevated; and the
company is delivering on new customer wins. We are modelling modest
growth in Q1 (+6% Y/Y) and look for confirmation of full-year guidance.
Momentum in servicing income should continue: Servicing income
should grow alongside vehicles under management, plus through increasing
penetration rates. We expect servicing income to grow as a proportion of
total revenue in 2024, which could be a positive for the valuation multiple.
We are modelling 12% Y/Y growth in servicing income for Q1 and 2024.
Net financing revenue to face headwinds: While 2024 is expected to be a
very good year for originations, net financing margins will be facing several
headwinds. As long as the company can deliver mid-single-digit growth in net
financing revenue, the story and guidance should hold. We forecast 6%
growth in Q1 and 4% growth for the full-year.
Syndication revenue also facing some headwinds: Growth in originations
should lead to growth in syndication volumes. However, syndication yields
have come under pressure and we are not counting on a recovery in 2024.
For Q1 we forecast 14% growth in syndicated volumes but with a lower yield
resulting in no Y/Y revenue growth.
Expense growth to closely track revenue growth: EFN is making a
number of investments in the business and management is guiding to flat
operating margins in 2024. For Q1 we are forecasting expense growth of 8%
and an operating margin of 54.7% vs. 54.4% Q1 a year ago.
Reporting Details: Reports after market close on May 14. Conference call is
May 15 at 8:00 a.m. ET (1-800-319-4610)