Post by
retiredcf on May 10, 2023 12:35pm
CIBC
Have a $130.00 target. GLTA
EQUITY RESEARCH
May 9, 2023 Earnings Update
GOEASY LTD.
No Surprises On Q1 Results (Or Revised Commercial
Guidance)
Our Conclusion
goeasy reported a fairly straightforward quarter characterized by a minor
earnings beat (3% above consensus) as well as loan growth and a credit loss
rate that were directly in line with previously established guidance. The
company also updated its three-year commercial forecasts to incorporate the
new rate cap. We updated our estimates at the time of the federal budget
and found that virtually all of our revised forecasts were squarely within the
new guidance ranges. Consequently, we have only made some minor
changes to our estimates. We continue to rate GSY Outperformer and like
the stock for its continued ability to compound earnings at an above-average
rate, stable credit performance, lower risk on a go-forward basis associated
with the rate cap (given that a 35% APR is consistent with other
jurisdictions), and abnormally attractive entry point for the shares.
Key Points
Modest earnings beat. Adjusted diluted EPS came in at $3.10, which was
~3% above our estimate and consensus (both at $3.02). Relative to our
estimate, the minor beat was driven by a combination of factors including
slightly better-than-expected interest revenue and lower-than-expected bad
debts expense (partly reflecting a lower provision rate).
Credit loss rate remains stable. On an annualized basis, the net charge-off
rate came in at 8.9%, which was essentially unchanged sequentially versus
9.0% in Q4 and at the mid-point of the previously established guidance range
for the quarter (8.5% to 9.5%).
Loan growth in line with prior guidance. The gross consumer loan
portfolio increased $196 million on a sequential basis, which was directly in
line with the prior guidance range of $185 million to $210 million. Consistent
with the past several quarters, secured lending represented the majority of
loan growth in the quarter (i.e., 62% of Q/Q growth). On a Y/Y basis, the
gross consumer loan portfolio increased 39%, reflecting a strong and
improved demand environment for subprime consumer credit.
Commercial forecasts updated to incorporate the new rate cap. goeasy
introduced a new set of three-year forecasts that incorporate the expected
impact of the new legislation. We had updated our estimates at the time of
the federal budget, and found that virtually all of our previous forecasts were
squarely within the revised guidance ranges released with Q1 results. In that
context, we don’t believe the updated commercial guidance was surprising.
However, we do acknowledge that the relatively modest near-term impact on
revenue and portfolio yield (owing to the slow multi-year nature of the impact
on the book as it gradually churns) may be perceived positively by a subset
of investors that were slightly more pessimistic about the magnitude of the
potential impac