GOEASY LTD.
Solid Q3 Beat on Operating Expenses
Our Conclusion
goeasy reported a 10% earnings beat on what appears to be lower-than-
expected operating expenses. Credit performance remained resilient in the
quarter with the net charge-off rate moderating sequentially, and loan growth
came in at the high end of the guidance range. The company continues to
report excellent results characterized by strong loan growth and stable credit
performance. Positive operating leverage also appears to be contributing to
the EPS momentum as well. We rate shares of GSY Outperformer.
Key Points
Solid earnings beat on lower operating expenses. Adjusted diluted EPS
came in at $3.81, which was ~10% above consensus and ~8% above our
estimate. Relative to our estimate, the beat was driven by lower-than-
expected operating expenses. Salaries & benefits expense as well as
advertising & promotion expenses were both lower than the prior two
quarters and also below our estimate.
Credit performance remains resilient. On an annualized basis, the net
charge-off rate came in at 8.8%, which was towards the lower end of the
previously established guidance range (i.e., 8.5% to 9.5%) and ~30 basis
points lower than the previous quarter.
Loan growth comes in at the upper end of the guided range. The gross
consumer loan portfolio increased $230 million on a sequential basis, which
was at the high end of the guided range ($205 million to $230 million).
Consistent with the past several quarters, secured lending continues to grow
at a faster pace than unsecured, but the magnitude of the differential was a
bit more modest than prior quarters.
Three-year commercial targets unchanged. The three-year targets were
reiterated. The guidance for year-end value of the gross consumer loan
portfolio has already been achieved (as of Q3), and goeasy indicated that it
remains confident that it can meet or exceed all other commercial forecasts.
We expect GSY to address the refinancing of the 2024 notes shortly.
We suspect that the company may look to roll the chunky series of
debentures before year-end. We had previously highlighted this in our
weekly market insights publication. We roughly estimate a 5% to 6%
negative earnings impact, but have already factored this into our 2024 EPS
estimate.
Increasing our earnings estimates and price target. Our earnings
estimates increase ~5% on a reduction to our operating expense
assumptions. Accordingly, we are increasing our price target modestly (from
$150 to $160) to reflect the strong quarter and positive estimate revisions.
Conference call today at 11 a.m. ET