CIBCEQUITY RESEARCH
May 11, 2022 Earnings Update
GOEASY LTD.
Minor EPS Miss Overshadowed By Strong Loan Growth And
Credit Performance
Our Conclusion
goeasy reported a solid quarter. Adjusted EPS were a few points below
consensus driven by what appears to be lower interest rates (possibly
reflecting a faster-than-anticipated shift towards higher-quality secured loans)
and temporarily elevated corporate development costs. However, this was
overshadowed by loan growth and credit performance, which both came in
better than our expectations and prior guidance. Full-year guidance was
unchanged, but the company is now pointing towards the high end of the
range for loan growth. No change to our thesis, but we are trimming our price
target from $200 to $180 in recognition of the continued repricing of public
equity markets since the time of our launch. We rate GSY Outperformer.
Key Points
Minor earnings miss overshadowed by strong growth and stable credit
performance. goeasy reported adjusted diluted EPS of $2.72, approximately
3% below consensus at $2.82 and also below our estimate of $2.88. Relative
to our forecast, the variance appears attributable to lower-than-expected
interest revenue and an increase in other expenses. We had modeled a
sequential decline in the weighted-average interest rate, but the magnitude
was slightly greater than we had forecast.
Loan growth was solidly above expectations for Q1. The gross consumer
loan portfolio increased $124 million on a sequential basis, exceeding prior
guidance of $80 million to $100 million. On a Y/Y basis, the loan portfolio
increased 34% (excluding the impact of the LendCare acquisition in Q2/21),
reflecting the highest Y/Y growth rate in the “post-pandemic” era and the
second largest quarter of organic growth in the company’s history (despite
Q1 typically being a seasonally slower period).
Credit performance was also a bit better than expected. On an
annualized basis, the net charge-off rate came in at 8.8%, below the bottom
end of the guidance range of 9% to 10% for Q1. It also reflected a sequential
improvement from 9.6% in Q4. This is a notable departure from the publicly
traded U.S. subprime installment lenders which all reported a sequential
increase in the net charge-off rate for the quarter.
Full-year guidance remains unchanged. The company reiterated its three-
year outlook, which includes loan growth of 18% to 28% in 2022 and net
charge-offs of 8.5% to 10.5%. The company is now pointing towards the high
end of the loan book growth range.
Trimming our price target. We are reducing our price target from $200 to
$180, commensurate with the compression of public equity market multiples
since the time of our launch one month ago.