Strong Growth Outlook Signaled For The Balance Of 2024 Our Conclusion
goeasy reported a fairly straightforward quarter, but signaled a strong growth
outlook for the balance of the year. Adjusted earnings were in line. Loan
growth came in above the guided range for the quarter, and net charge-offs
were at the mid-point. Three-year commercial targets were unchanged, but
management signaled that it now expects to be at the high end of the
guidance range for full-year loan growth (implying strong growth trends for
the balance of 2024). We are increasing our price target to $230 (from $220
previously) to reflect the incrementally positive tone and outlook on growth.
Key Points
Earnings were in line. Adjusted diluted EPS came in at $3.83, which was
essentially in line with consensus of $3.81 and our estimate of $3.80. Higher-
than-expected bad debt expense was offset by higher-than-expected interest
revenue. The variance in bad debt expense was driven by a higher provision
rate that increased 10 bps sequentially. The company attributed this to
changes in forward-looking economic conditions at quarter-end.
Loan growth was above the high end of the guidance range. The gross
consumer loan portfolio increased $207 million on a sequential basis, which
was above the high end of the guided range of $180 million to $200 million.
Secured instalment loans represented approximately 57% of the Q/Q growth
(compared to 43% of the overall portfolio). On a Y/Y basis, loan growth
amounted to 29%, reflecting a strong demand environment for subprime
consumer credit.
No moderation in the pace of growth. Management indicated that it now
expects to achieve the high end of its loan growth guidance range for the full-
year 2024. This would imply average quarterly loan growth of $233 million for
the balance of the year, above the quarterly average of $212 million for the
past two years.
Charge-offs were squarely in line with guidance. On an annualized basis,
the net charge-off rate came in at 9.1%. This was a few ticks higher than the
prior quarter at 8.8%, but almost directly at the mid-point of the previously
established guidance range (i.e., 8.5% to 9.5%).
Yield was a bit better than expected. The total yield on consumer loans
(inclusive of ancillary products) was 35.0%, which was slightly above prior
guidance of 33.75% to 34.75%.
Guidance unchanged. goeasy more commonly updates its three-year
commercial targets around Q2 or Q4 reporting (unless circumstances
warrant). The outlook in Q1 was unchanged from the prior quarter.
Valuation remains generally in line with long-run averages. goeasy
trades at 10.5x the rolling NTM consensus EPS estimate. This remains
generally in line with the trailing 10-year average