CIBC Raise TargetEQUITY RESEARCH
November 10, 2022 Earnings Update
GOEASY LTD.
Credit Performance Continues To Defy Market Expectations
Our Conclusion
goeasy reported another quarter of stable credit performance and a beat on loan growth. Adjusted EPS also came in approximately 6% above our
forecast and the consensus estimate. Credit performance continues to defy market expectations, demonstrating resiliency against the backdrop of elevated inflation and a normalization of spending patterns in the post-
pandemic era. The company reiterated its targets, which call for ~50% loan growth and stable credit performance over the next two years. We rate GSY Outperformer and increase our price target to $180 from $160 due to increasing confidence in the outlook on loan growth and credit performance.
Key Points
Earnings beat. Adjusted diluted EPS came in at $2.95, which was ~6%
above consensus at $2.79 and our estimate of $2.77. Relative to our
forecast, the variance appears attributable to a combination of factors
including: 1) lower-than-expected bad debts; 2) lower-than-expected
advertising and promotion expenses, and; 3) slightly higher interest revenue.
Credit performance remains stable. On an annualized basis, the net
charge-off rate (i.e., credit loss rate) came in at 9.3%, which was in line with the previous guidance range of 9% to 10%. The credit loss rate was also stable on a sequential basis (unchanged versus Q2), whereas the publicly traded U.S. subprime installment lenders have all experienced a more meaningful normalization from the pandemic lows. goeasy’s delinquency rate (i.e., the proportion of loans that are 30+ days past due) was essentially unchanged sequentially at 2.6%. We consider delinquencies to be the best leading indicator for the following quarter’s net charge-offs. Guidance for future credit losses was unchanged.
Loan growth exceeds expectations (again). The gross consumer loan
portfolio increased $219 million on a sequential basis, exceeding the prior
guidance range of $180 million to $200 million and reflecting broad-based
momentum across the full suite of credit products and distribution channels. On a Y/Y basis, the gross consumer loan portfolio increased 37%, reflecting a strong and improved demand environment for subprime consumer credit.
Management had previously increased its guidance for full-year loan growth in August. Guidance unchanged. Management reiterated its forward outlook, which envisions loan growth of over 50% by year-end 2024 and stable credit performance throughout the forecast horizon.
Extending the liquidity runway. goeasy also announced a new $200 million securitization facility that will help support organic growth through the second half of 2025 (previously Q2/25)