GOEASY LTD.
Clean And Straightforward Q2 Results
Our Conclusion
goeasy reported what we interpretated to be a fairly clean, straightforward,
down-the-fairway type quarter. Earnings came in slightly ahead of consensus
(+3%), credit performance was stable, and loan growth slightly exceeded
prior guidance. The three-year commercial targets were unchanged, but
management now expects to be at the high end of the range for full-year
2023 loan growth. We felt there was very little to nitpick about the Q2 print
and continue to rate the stock Outperformer. We are increasing our price
target to $170 (from $150) to reflect a higher trading multiple and our
expectation for a continued convergence towards the long-term average.
Key Points
Modest earnings beat. Adjusted diluted EPS came in at $3.28, ~3% above
consensus and ~1% above our estimate. Relative to our estimate, the minor
beat was driven by lower-than-expected expenses.
Credit performance remains stable. On an annualized basis, the net
charge-off rate came in at 9.1%, which was squarely in line with the
previously established guidance range (i.e., 8.75% to 9.75%) and essentially
unchanged from the prior few quarters.
Loan growth slightly exceeds prior guidance. The gross consumer loan
portfolio increased $210 million on a sequential basis, which was slightly
above the guided range of $175 million to $200 million. Consistent with the
past several quarters, secured lending continues to grow at a faster pace
than unsecured, but the gap appears to be narrowing to some degree. On a
Y/Y basis, the gross consumer loan portfolio increased 35%, reflecting a
strong and improved demand environment for subprime consumer credit.
Three-year commercial targets unchanged. As expected, goeasy
reiterated its three-year targets (which were revised very recently in the prior
quarter to incorporate the impact of the new interest rate cap). However, in
the context of a strong demand environment, GSY now expects to achieve
the high end of its loan book forecast for year-end 2023 of $3.6 billion.
Some minor updates to funding capacity. In the quarter, GSY extended
the maturity of its securitization warehouse facility by more than a year and
amended the terms to improve the eligibility criteria for loans. The aggregate
capacity of the facility was unchanged ($1.4 billion) and the spread over
CDOR increased very marginally (from 185 bps to 195 bps).
Valuation remains below long-term averages. Since reporting Q1 results
in May, GSY’s share price has advanced 36%. Fundamentals have remained
on-trend (i.e., strong growth complemented by stable credit performance),
but the stock can be high-beta in nature and advance rapidly when markets
are moving up and to the right. Despite the recent rally, GSY trades at 8.8x
P/E based on the rolling NTM consensus estimate, which remains slightly
below the longer-term average of ~10x. We are increasing our price target to
$170 (from $150) to reflect a higher trading multiple and our expectation for a
continued convergence towards the long-term average