goeasy Ltd EHMEF

Primary Symbol: T.GSY

Financial Services Credit Services

goeasy Ltd. is a Canada-based company, which provides non-prime leasing and lending services through its easyhome, easyfinancial and LendCare brands. The Company's segments include easyfinancial and easyhome. The easyfinancial segment lends out capital in the form of unsecured and secured consumer loans to non-prime borrowers. easyfinancial’s product offering consists of unsecured and real estate secured instalment loans. The LendCare operating segment specializes in financing consumer purchases in the powersports, automotive, retail, healthcare, and home improvement categories. The easyhome segment provides leasing services for household furniture, appliances and electronics and unsecured lending products to retail consumers. Its customers can transact seamlessly through an omnichannel model that includes online and mobile platforms, over 400 locations across Canada, and point-of-sale financing offered in the retail, powersports, automotive, home improvement and healthcare verticals.

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goeasy Ltd

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Post by retiredcfon May 10, 2023 1:26pm

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Post# 35441158

TD

Have a $160.00 target. GLTA

goeasy Ltd.

(GSY-T) C$95.96

Q1/23: Revised Guidance for Reg Change Implies Minimal Impact Event

goeasy reported Q1/23 adjusted EPS of $3.10 (up 14% y/y) versus our estimate of $3.02 (consensus: $3.02). The EPS beat was driven by lower-than-expected credit losses and slightly higher revenue. The company will host a conference call this morning at 11:00 am ET (dial-in link; webcast).

Impact: POSITIVE (particularly in context of regulatory overhang)

Management provided revised three-year guidance to account for new regulatory rules that will lower the maximum rate charged on consumer loans (see our March 29, 2023 report). The guidance may have to be tweaked once the effective date of the change is announced (assumed to be January 1, 2024, in guidance); however, the most important takeaway is that the regulatory change will have minimal impact on the bottom line. While the average yield on consumer loans is expected to decrease at a slightly faster pace, the higher-quality borrower profile should result in lower credit losses, partially offsetting the revenue impact. Additionally, management increased the high-end of its loan growth guidance for 2024 and 2025, implying to us that there is sufficient demand within this narrower risk bucket.

For the quarter:

Loan growth remained strong with balances up 7% q/q and 39% y/y (modestly lower than our estimate). Top-end of 2024/2025 guidance revised slightly higher.
Credit was solid with a net charge-off ratio of 8.9% (our estimate: 9.5%) vs. 9.0% last quarter and 8.8% last year. 2023 and 2025 guidance revised 50bps lower.
Revenue yield was in line with expectations, down almost 70bps q/q and ~300bps y/y. 2024/2025 guidance revised 50bps-100bps lower.

We discuss these topics further in the following pages.

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; all of our estimates fall within guidance ranges.