May 8, 2024
goeasy Ltd.
Solid Q1/24 results. Increasing target to $225
Our view: While normalized EPS was largely in line with our forecast and consensus, we think the notably better-than-forecast revenue yield was a positive sign. Big picture, we think GSY continues to deliver strong results, driving profitable growth with positive credit performance. We think an investment in GSY offers investors exposure to a part of the Canadian financial services industry that could generate attractive investment returns over the medium- to long-term. We view the shares as attractively valued and increase our target to $225 (was $201) and maintain our Outperform rating.
Key points:
Q1/24 normalized EPS of $3.83 was largely in line with our $3.87 forecast and $3.81 consensus (range of $3.66 – $3.88). The slight variance to our forecast reflected higher-than-forecast bad debt expense mostly offset by higher-than-forecast interest income as the total income yield of 35.0% was solidly better than our 33.9% forecast.
In terms of other key metrics from Q1/24: (1) originations of $686MM were slightly below our $701MM forecast; (2) gross consumer loans of $3.85B were in line with our $3.84B forecast; (3) net charge-offs of 9.1% of avg. consumer loans were in line with our 9.0% forecast; and (4) bad debt 11.2% of avg. loans were worse than our 10.0% forecast, primarily due to Q/Q changes in forward looking economic conditions as opposed to deterioration in credit performance.
Other takeaways: (1) For Q2/24, GSY is guiding to gross consumer loans to be up +$250-$275MM Q/Q, total loan yield (including ancillary products) of 34.0% – 35.0% and net charge-off rate of 8.5% – 9.5%; (2) Q1/24 was a record quarter for new customer application volume of 613,000 +41% Y/Y with 40,400 new customers acquired +17% Y/Y; and (3) while GSY’s guidance remained unchanged, the Company is now guiding to 2024 year- end gross consumer loans to achieve the high end of guidance, so at least $4.55B (guidance range of: $4.35B – $4.55B).
Increasing our 12-month price target to $225/share (was $201) and maintaining our Outperform rating. The higher target is due to higher financial forecasts and a slightly higher valuation multiple (11x P/E, was 10x) reflecting our slightly higher ROE forecasts. Conference call today at 11am EST; webcast link available on goeasy website or dial-in 1-888-664-6392.