I was thinking about the Canadian non-prime lending market some more this weekend as the Canadian job market continue to be so robust and I am not a fan of playing the Tier 1 banks on the prime side.  GSY does a great analysis that shows that the non-prime end of the credit market holds up a lot better in recessionary periods.
 
I just think there is an opportunity for GSY to expand its product suite offering to a pre-existing customer as the customer overlap is essentially spot on and buying AXIS on the auto lending side fits the bill. I might be a year or two early but here’s how I See it;
 
GoEasy Ltd.
 
Market Cap – 535M
Gross Loans – 602M (Mostly Consumer w Lease Assets)
Average Interest Rate on Loan – 42%
Bad Debt Losses – 14%
Valuation – 2.4/Book
 
Avg Customer – Income of 35-45k/year, 450-700 Credit Score & 35-45 years of age
 
Kicker: Right from Q4 investor presentation – “Diversified Sources of Revenue and Funding – Actively pursing strategic growth opportunities in non-prime consumer credit spectrum”
 

Axis Auto Finance Inc.
 
Market Cap – 55M
Gross Loans – 110M (Automobile)
Average Interest Rate on Loan – 38%
Bad Debt Losses – 9%
Valuation – 1.5/Book (Peers have been taken out at 4.0/Book)
 
Avg Customer – Income of 46.8k/year, 450-600 Credit Score & 37 years of age
 
Kicker: Todd Hudson was just brought on as CEO of the company and is long standing deal man in the financial sector and there is no way he will sit still with this 50M market cap company
 
 
ACTION: GSY to Buy AXIS for 1.20/share
 

Granted, pure speculation but as soon as the store opening growth for GSY slows down as it is projected to in out years it will be time for them to look at a broader diversified offering to keep the growth rate going.  With Todd Hudson at them helm of AXIS there is a small window to purchase AXIS before it grows too big (organically and through acquisition itself) that it gets tougher for GSY to absorb the company.  
 

 
Cross Selling in Financial Services is Everything…