My Q4 Preview: 350% Rev Growth w 0.10/Share Earnings Power…This is it. Finally, after nearly five months of waiting and 7 months after the closing of the Trend Financial acquisition we finally get a look at the fully consolidated business.
Since we last heard from them insiders have purchased in the open market about 2% of the float or 1.12M shares for an average price of 0.68/share or 36% premium to current share price. Sounds like a bullish set up to me…
Lets Dig in;
Revenue
Looking for 8.5 - 9M in Revenue. Exiting Q3 the business already had a revenue run rare of 16.5M to that they add Trend Financial which adds another 54M or 95% to its Lease Book. This isn’t just an inorganic growth story. If you look at the revenue from the core Axis Lease Book it is growing at 18% YoY.
The doubling of revenue from both organic growth and acquisition and taking out your largest competitor seems real bullish to me. I don’t think people realize the true size of the company still.
Profitability
Looking for 0.015 – 0.02 Adj in EPS. All about management credit quality. They have done an excellent job so far and since GoEasy Financial has already reported months ago for this period and credit was rock solid in the sub prime credit category all signs look positive. (I just like to point out that they have a much better loss yield then GSY.TO but I digress). Operating margin in the 45-50% range with 2-2.5M for General & Admin. (I might be a little low here as the integrate the three businesses and takes a Q or 2 for the cost synergies to be realized)
0.10/share of Earnings Power
This is where the story gets real bullish. If we agree that the business has 40-45M in revenue with a 45-50% Operating Margin and 2.5M/Quarter in General & admin expenses that leaves you 10M in Earnings.
I to believe there is big upside from a debt refinancing at better rates as the business scales and lenders get more comfortable with the model. It sure helps they have Mr. Hudson at the helm leading those negotiations.
Valuation
You put a reasonable 10-12x P/E multiple on my 0.10/share in earnings number you get a share price of 1.00-1.20/share or 1.10/share at the midpoint which would equate to 120% upside.
Leave you with this, in 1 year they have grown a 8M Run rate Lending business to something closer to 35-40M Run rate or 300-400% growth while only expanding the share count aprox. 100%. The per share growth has been impressive and I don’t think they are done consolidating the sub prime space before someone takes them out.
LONG