ECN Capital Corp T.ECN

Td Our C$2.75 target price (down from C$3.00)

[Blueswin]

Event ECN reported Q4/23 adjusted net loss from continuing operations of $0.05/share, down from $0.02 last year, and below our estimate of nil (consensus: $0.01). ECN continues to absorb material below-the-line charges, driving a net loss of $0.20/ share. The impact of rising benchmark interest rates and related factors, including the lag between approval of MH loans and sale of the loans (elevated balance sheet); as well as the shift in sales to institutional asset managers, resulted in significant revenue shortfalls. This quarter, ECN characterized the lost revenue as $14.6mm and presented adjusted revenue as $40.2mm, versus $25.6mm reported. Impact: NEGATIVE Originations for the quarter were $503.1mm, down less than 1% y/y. MH originations of $373.8mm (up 15.7% y/y) were below above our estimate of $307mm; and RV&M originations of $129.3mm (down 29.6% y/y) were below our estimate of $146.9mm. Encouragingly, loan approvals in MH are showing improved momentum (up 6.4%), and January and February originations are up 22% y/y. Last quarter, management announced that the RV&M segment could be sold or spun-off in Q1/24. After the strategic review, management has decided to continue to run RV&M business in its current form. Accordingly, plans to eliminate ECN corporate overhead have been cancelled. The company did complete the sale of RV&M inventory finance business on February 21. The cash proceeds of $153mm were used to reduce leverage. The decision to retain RV&M will require that ECN build or buy an RV&M servicing platform in 2024. On an adjusted basis, revenue was down $12.3mm y/y, reflecting lower origination margins associated with lower premiums earned on portfolio sales to institutional asset managers. Institutional gain on sale margins are 4-6% versus 7-9% origination margins for banks/credit unions. Funding for 2024 appears robust, with approximately $2bln in committed funding across banks/credit unions and institutional investors. Management guided to a blended origination margin of 5.5-6.5% for 2024.