ECN Capital Corp T.ECN.PR.C

TD Report

[retiredcf]

ECN Capital Corp.

(ECN-T) C$10.89

Q3/21 Results in Line Event

ECN reported Q3/21 adjusted-operating EPS from continuing operations of $0.06, up 72% y/y, better than our estimate of $0.05. Consensus estimates were not relevant as some estimates were on a continuing operations basis, while others were on a total company basis. All figures in U.S. dollars, unless otherwise stated.

Last quarter, ECN announced the sale of Service Finance for $2bln in an all-cash deal to Truist Bank. The net after-tax proceeds of $1.5bln will be distributed in the form of a special dividend of C$7.50 to shareholders (~70% of ECN's share price) following the closing of the sale in Q4/21.

Impact: NEUTRAL

• Triad reported pretax adjusted income of $16.2mm, up 81% y/y and higher than our forecast of $15.5mm, reflecting strong originations growth and higher margins. Originations of $299mm were up 48% y/y and slightly lower than our estimate of $319mm. Servicing and origination revenue was in line with our estimate, such that better-than-expected results reflect lower operating expenses. Origination and servicing margins were up 104bps and 19bps y/y, respectively, with origination margins better than expected (bulk portfolio sales).

• KG reported pretax adjusted income of $12.2mm, up 6% y/y and higher than our estimate of $11.8mm. Revenue was flat y/y and slightly lower than expected; as such, the beat in the quarter was driven by lower operating expenses. Weaker revenue growth reflected weaker partnership services revenue (managing and advising of co-brand credit card programs), partially offset by better transaction revenue (acquisitions/divestitures of co-brand card portfolios).

• Adjusted operating expenses of $9mm were slightly better than our estimate of $9.6mm and up from $8mm last year, reflecting higher depreciation/amortization expense.

  TD Investment Conclusion

  We arrive at our target price of C$6.00 by applying a 15.0x P/E multiple to our one-year forward EPS estimates (Q4/22E to Q3/23E). Additionally, the company is expected to pay a C$7.50 special dividend for the sale of SF in Q4/21. Our target P/E and BUY rating are supported by a reliable funding model, the resilience of the MH business model, strong origination momentum, and private value assigned to loan originators, as evidenced by recent transactions in this segment (including the 18x-20x paid for SF).