TSX:GSY - Post Discussion
Post by
retiredcf on Nov 11, 2022 8:50am
TD Initial Reaction
goeasy Ltd.
(GSY-T) C$127.92
Q3/22 First Look: Record Sequential Loan Growth; Credit Stable Event
goeasy reported Q3/22 results. The company will host a conference call this morning at 11:00 am ET (dial-in link; webcast).
Impact: POSITIVE
goeasy reported Q3/22 adjusted EPS of $2.95 (up 9% y/y) versus our estimate of $2.81 (consensus: $2.79). Relative to our estimates, loan growth was stronger- than-expected and net charge-offs were lower-than-expected. The company also announced a new $200mm securitization facility to support the auto financing program, increasing undrawn debt capacity to $1.1bn; sufficient to fund organic growth plans through H2/25E. The fully-drawn weighted-average cost of debt remains manageable at 5.2% (4.3% in Q3/21). Adjusted ROE remains strong at 24.9%.
Loans: Loan growth was a record (organic) sequential increase of $219mm, outperforming our estimate of a $183mm increase (guidance $180mm-$200mm). The robust growth was driven by record originations of $641mm, up 47% y/y, with healthy demand across products and channels (including unsecured, home equity, powersports, and auto lending). It is important to note, expenses and provisions associated with this higher-than-expected loan growth get booked upfront but should generate additional earnings in the future (~$0.40/share after-tax impact in Q3/22). Management reiterated guidance for total loans reaching $3.8bn-$4.0bn by Q4/24E (up ~50% from Q3/22 levels).
Yield: Revenue yield of 37.5% was down ~165bps q/q and ~325bps y/y (in-line with our estimate). The y/y decrease reflects organic growth of lower-yielding products (auto, home equity, POS of powersports, home improvement, health care, and retail) and increased penetration into the Quebec market (lower interest rates), among other factors. We expect the revenue yield to continue to trend lower as the mix of business shifts to a higher proportion of lower-risk secured products going-forward (38% secured in Q3/22 vs 33% in Q3/21).
Credit: Net charge-offs were stable sequentially at 9.3%, but up from 8.3% in Q3/21. This was lower than our estimate of 9.8% and near the mid-point of guidance (9.0%-10.0%). The prior-year comparable reflects pandemic-related government support and consumer expense reductions. Management targets a net charge-off ratio of 8.5%-10.5% on an annualized basis in 2022E and 2023E. The allowance ratio continues to trend lower, down 10bps q/q to 7.58% as the portfolio continues to be high-graded.
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