goeasy Ltd.
(GSY-T) C$150.09
Q4/21; 2022/2023 Loan Guidance Raised; 2024 Guidance Introduced
Event
GSY reported Q4/21 adjusted EPS of $2.76 (up 23% y/y) vs. our estimate of $2.65 and consensus of $2.62. The company raised its 2022 and 2023 loan growth guidance ranges by $50mm and $100mm, respectively, and introduced 2024 guidance. GSY repurchased ~2% of shares in the quarter and announced a 38% dividend increase.
Impact: SLIGHTLY POSITIVE
goeasy's momentum continued in Q4/21, reporting record EPS, supported by record origination growth, record organic loan growth, and record revenues. In our view, the three most important metrics to assess for GSY are credit, loan growth, and yield.
Loan Growth: Ending gross loans increased $134mm q/q to $2.03bln, better than our forecast of $2.01, a strong result materially exceeding management's guidance of $100mm-$110mm (upper-end of 2021 guidance). Based on management's guidance, loans are expected to grow ~$0.5bln/year for each of the next three years, or over 70% by Q4/24E. Importantly, this guidance assumes only domestic organic growth with the current product suite. Origination volumes were a record $507mm (up 16% q/q), with 61% going to new customers (up from 51% last year). Consumer demand for credit is improving, and the newly launched auto loan program is providing another avenue for growth. Auto loans accounted for 5% of new loans issued.
Credit: The credit environment normalized this quarter (as expected) with net charge-offs coming in at 9.6% (lower than our forecast of 10.0%), up from 8.3% last quarter and 9.0% last year. We expect credit losses to remain around these levels going forward (guidance for 9.0-10.0% in Q1/22E). The allowance ratio was relatively stable at 7.87%, a comfortable buffer, in our view.
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.