goeasy Ltd.
(GSY-T) C$136.97
Q2/22: Guidance Raised on Strong Loan Growth Event
GSY reported Q2/22 adjusted EPS of $2.83 (up 9% y/y) vs. our estimate of $2.73 and consensus of $2.74. The EPS beat was driven by very strong loan growth and a higher-than-expected revenue yield partially offset by higher-than-expected provisions/expenses associated with the strong loan growth. Credit losses were higher vs. prior periods but remain within expectations. Management revised its three-year outlook, with the most significant change being higher loan growth.
Impact: POSITIVE
Key takeaways from the quarter include:
Loan Growth: Loans increased a record $216mm sequentially (organic; guidance $160-$180mm), over 60% higher than the previous largest increase, driven by a record volume of applications (up 51% y/y). Originations of $628mm were up 66% y/y. Some of the company's recent investments are really starting to gain traction. Home equity originations increased 169% y/y; powersport originations +59% y/ y; and auto financing originations ($50mm) +451% y/y. Management is guiding to $180-$200mm of growth in Q3/22E and an ~70% increase in the portfolio by Q4/24E (revised 10%+ higher). Importantly, this guidance assumes only domestic organic growth with the current product suite.
Credit: Net charge-offs increased to 9.3% vs. 8.8% in Q1/22 and 8.2% in Q2/21 but remains within guidance ranges and was better-than-our-forecast (our estimate: 9.7%). The prior-year comparable reflects the benefit of pandemic- related government support and consumer expense reductions. The allowance ratio was down 10bps q/q to 7.68%. We expect credit losses to move modestly higher next quarter, but remain within the guidance range (guidance for 9.0%-10.0% in Q3/22E). Management increased its 2023E net charge-off range by 50bps (flat with 2022E), as a prudent move given the macro-outlook.
TD Investment Conclusion
We like goeasy for five primary reasons: 1) the company's unique position within the Canadian financials space in that it is a growth company exhibiting a superior ROE; 2) the significant opportunity for continued growth in its current market, and new verticals and potential geographic expansion; 3) credit risk is well-managed; 4) potential for additional acquisitions to further boost growth; and 5) track record of rewarding shareholders via dividend increases. Additionally, management has a strong track-record of meeting or exceeding guidance; all of our estimates fall within guidance ranges.