TSX:ECN - Post Discussion
Post by
retiredcf on Feb 05, 2021 9:52am
TD Joins the Party
ECN Capital Corp.
(ECN-T) C$7.19
2021 Investor Day Event
On Thursday, ECN held an information session, which included detailed guidance for 2021. All figures in U.S. dollars, unless stated otherwise. Management guided to 2021E adjusted EPS of $0.46-$0.51 (previously $0.44-$0.53), up 56% y/y at the midpoint. Although we have lowered our 2021E EPS to $0.50 from $0.52 and 2022E EPS to $0.64 from $0.71 (higher corporate expenses and lower servicing fees in HI), we continue to see strong origination/business momentum in all three of ECN's operating segments. The company also guided to 2022E EPS of $0.55-$0.64, which implies ~23% growth from the midpoints of each year.
Impact: MIXED
Please see our corresponding Company Bulletin report for additional details.
SFC guidance is for 2021E pretax adjusted earnings of $100mm-$108mm, which compares with our estimate of $107mm, up 65% y/y. Originations guidance is $2.5bln-$2.7bln, which compares with our estimate of $2.7bln, up 30% y/y. We believe the following factors support very strong origination growth in 2021 and going forward: a) work-from-home trends; b) an aging housing stock (which needs improvements); c) a move toward more energy-efficient housing; d) low interest rates; and e) market-share gains from competitors facing funding challenges. The company is seeing particularly good momentum in HVAC and windows/doors (especially through new, mature dealers).
TD Investment Conclusion
We arrive at our target price (C$9.00, up from C$7.00) using a combined earnings and book value approach. Applying 11.5x forward P/E (2022E EPS) and 2.0x P/B, an appropriate multiple in the context of the forecast ROE and the balance-sheet- light business model, to Q4/21E book value per share, we arrive at our revised target price. Our BUY rating is supported by the upside to our target price, a reliable funding model, the resilience of HI and MH, and improving origination momentum. Although the capital-light model supports valuing the stock on a P/E basis, we are hesitant to do so until we see consistent book-value growth and fewer non-core charges.
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