goeasy Ltd EHMEF

Ink Research

[retiredcf]

Always a good sign. GLTA

June 13, 2023

Morning Report: Contrarian alert: goeasy insiders defy the economic doomsayers

We return to the Financials sector where non-prime consumer lender goeasy (GSY) has had to deal with a double whammy of interest-rate driven recession fears and regulatory changes. However, Q1 results appear to have surprised investors to the upside and insiders continue to buy. Goeasy loan originations reached $616 million in Q1, up 29% from Q1 2022. Growth was driven by a range of products and acquisition channels including unsecured lending, home equity loans, point-of-sale lending, and automotive financing. The gross consumer loan receivable portfolio reached $2.99 billion, up 39% from Q1 2022. The bigger loan book delivered record revenue of $287 million, up 24% year-over-year, while the net charge off rate, a measure of credit performance, remained within the firm's target range at 8.9%. Q1 operating income was a record $102 million, up 28% from Q1 2022. That translated into Q1 earnings of $3.01 per diluted share, up 94% from the previous year.

On the regulatory side, the March federal budget lowered the cap on the maximum allowable rate of interest to an annual percentage rate (APY) of 35%. The stock sold off on the news, but goeasy concluded that the changes are likely to be a bigger burden for smaller competitors. Addressing the issue, goeasy said, "The Company does not expect a significant impact to its business outlook and believes the change will benefit goeasy, and those with scale, in the long term." Meanwhile, even as economic headwinds could intensify, we suspect Ottawa's aggressive annual immigration targets will provide opportunity for the overall lending industry. Last year, Canada admitted 437,180 immigrants, helping to boost Canada's population to almost 40 million according to the CBC. GSY has climbed back off its spring lows, closing Tuesday at $110.25, just shy of its 200-day moving average of $112.00.