TSX:GSY - Post Discussion
Post by
retiredcf on May 03, 2023 8:50am
TD
goeasy Ltd.
(GSY-T) C$88.34
Q1/23 Preview Event
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12-Month Target Price: C$160.00 Prior: C$180.00 |
12-Month Dividend (Est.): C$3.84 |
12-Month Total Return: 85.5% |
GSY will report Q1/23 earnings after market close on May 9, with a conference call scheduled for 11:00 a.m. the following day (dial-in link; webcast). We forecast Q1/23 adjusted EPS of $3.02, up 11% y/y; consensus: $3.04.
Impact: NEUTRAL
During the quarter, regulatory changes were proposed as part of Canada's 2023 Federal Budget that would lower the 'criminal rate of interest' to 35% from ~47% (see report). If the change were to be implemented today, it would impact slightly over a third of GSY's loan book. That proportion of the book has been decreasing over time and had a weighted-average interest rate of ~42.5% as of Q4/22.
The implementation date of the proposed change has not been set, and therefore we have not changed our 2023 forecasts to include any impact related to the change. However, we do believe management will revise its three-year guidance lower once we have greater certainty around timing and its implications. Accordingly, we have adjusted our 2024E revenue yield only slightly lower, as it will take time for the change to be rolled through the book (applies only to prospective loans from the implementation date). There are also some potential offsets to consider, such as a better credit profile (lower charge-offs) and increased pricing. We do believe the change will have a negative impact on earnings growth for a short period following the effective date, but importantly, not sufficient to change our thesis on the overall business.
For the quarter, we remain focused on the underlying business fundamentals, namely loan growth, credit, and revenue yield, which we discuss 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.
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