goeasy Ltd.
(GSY-T) C$118.00
Resuming Coverage Following Equity Issuance Event
We are resuming coverage of goeasy following the closing of a $57.9mm common equity offering (including full exercise of 15% over-allotment option).
Impact: POSITIVE
Unlocking Balance Sheet Capacity to Fund Incremental Organic Loan Growth:
goeasy announced today the closing of a 488.75k share, $57.9mm (gross proceeds) equity raise at a price of $118.50/share. The raise is relatively modest in the context of an over $3bn balance sheet but, importantly, unlocks additional debt capacity given the company's capital structure. This can be used to fund incremental loan growth above and beyond the company's disclosed guidance ranges (if the company constrained the rate of growth to remain within current guidance ranges, the equity raise would not have been necessary). Accordingly, we expect the company to raise its loan growth guidance ranges concurrent with the Q4/22 earnings release.
Equity Raise Can Support $350mm+ of Additional Loan Growth Over the Next 12-24 Months: The equity raised can be levered 3.5x-4.0x in terms of the debt capacity it unlocks supporting ~$250mm of incremental loan growth (including the cash from the equity raise). As at Q3/22, the company had over $1.1bn of undrawn debt capacity. That incremental loan growth is also expected to generate earnings which can be used to fund additional loan book growth, resulting in a combined $350mm+ of additional balance sheet capacity over the next 12-24 months (we estimate). We have raised our 2023 loan growth forecast by ~$80mm resulting in the equity raise being EPS accretive by H2/23.
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 opportunities 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; substantially all of our estimates fall within guidance ranges (with 2023 loan growth forecast raised to the top-end of the guidance range).