td pre-release update $6.50Event ECN is expected to report Q3/20 results on November 11. We forecast Q3/20 adjusted EPS of US$0.09, below previous guidance (dropped in Q1/20) of US$0.11- US$0.12 and in line with consensus of US$0.09. Impact: NEUTRAL Last quarter, HI reported a sharp decline in servicing margin (service fees to average managed assets), reflecting what management characterized as a temporary reduction in servicing fees for 2020 to compensate funding partners for the higher credit risk associated with COVID-19. In return, ECN received accelerated funding commitments from its partners ahead of contractual maturities. We forecast HI's pre-tax adjusted earnings declining 10% y/y, reflecting a 114bps decline in the servicing margin, offset by 25% growth in originations and very strong growth in average managed assets (up 34% y/y). Our servicing margin forecast for 2021 is set at roughly the same level as the quarters shortly before fee reductions. The key question is if additional costs or fee concessions will be incurred in subsequent quarters in support of the expected growth in originations. Origination growth of 25% is roughly in line with the growth seen over the last six quarters. With certain competitors voluntarily or forced to retrench, SFC has seen the number of new dealers signing up with the company increase to ~300 monthly, from a normal run rate of ~150. SFC's key competitors include GreenSky, Synchrony Bank, EnerBank, and Wells Fargo. Similarly, if the U.S. does, in fact, introduce another multi-trillion dollar stimulus package in 2021, we believe the home-improvement sector could benefit. Our estimates reflect HI origination growth accelerating to 35% in 2021 versus 24% in 2020. TD Investment Conclusion Our C$6.50 target price is based on a P/B approach to valuation. We apply 1.7x P/B, an appropriate multiple in the context of the forecast ROE and the balancesheet-light business model. 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, particularly in HI. While 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. 7 7 6 6 5 5 4 4 3 3 2 2 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 ECN-T: Price Company Profile ECN Capital Corp. (ECN) originates, manages, and advises on prime consumer credit portfolios on behalf of their bank and credit union partners, primarily in the U.S. The company operates through Service Finance (home improvement loans), Triad (manufactured home loans), and Kessler (consumer credit card portfolios). Financial Services - Diversified Financials E