goeasy Ltd.
(GSY-T) C$119.19
Q1/22 Preview Event
GSY is expected to report Q1/22 earnings on May 11, with a conference call scheduled for 9:30 am the following day (1-866-219-5269; passcode: 1938947#). We forecast Q1/22 adjusted EPS of $2.88, up from $2.34 last year; consensus: $2.82.
Impact: NEUTRAL
GSY stock is down almost 50% from its recent all-time high set in September 2021, and now trades below Canada's banks (forward P/E 9.8x/8.2x vs Canada's banks 10.4x/9.8x 2022E/2023E EPS). This is surprising to us as it appears to suggest that the market is building in a severe credit event or a sharp contraction in non-prime loan demand, or some combination of the two, in our view. The key areas we are focused on this quarter include:
Loan growth: We forecast gross loans increasing 5% q/q or ~$94mm, which falls towards the upper-end of management's guidance range of $80-$100mm. At a recent conference, management expressed confidence in meeting (or exceeding) their target this quarter. We expect the recently launched auto-loan product to contribute to this growth (represented 5% of new loans issued in Q4/21) given the company's dealer network growth ambitions (add ~900 new dealer partners in 2022). Our forecast contemplates loan growth of 23% in 2022E and 18% in 2023E.
Credit: Last quarter, we saw an uptick in charge-offs from the very low levels experienced throughout the pandemic. Management suggested that the Q4/21 rate should represent a steady-state run-rate level going forward and that Q1/22 charge- offs are likely in the lower half of the 9-10% guidance range (our forecast: 9.4%).
TD Investment Conclusion
We like goeasy for five primary reasons: 1) the company's unique position within the Canadian financials space in that it is a growth company exhibiting a superior ROE; 2) the significant opportunity for continued growth in its current market, and new verticals and potential geographic expansion; 3) credit risk is well-managed; 4) potential for additional acquisitions to further boost growth; and 5) track record of rewarding shareholders via dividend increases. Additionally, management has a strong track-record of meeting or exceeding guidance; all of our estimates fall within guidance ranges. Given the level the stock currently trades at, we view this as an attractive BUY-opportunity.