Mario Mendonca TD July 11thECN is expected to report Q2/23 results in mid-August. We forecast Q2/23E adjusted EPS from continuing operations of $0.04. Consensus stands at $0.04-$0.05.
Valuation On our 2023E EPS, ECN is trading at 17.0x, compared with the five-year average (twoyears forward) of 11.4x. ECN is also trading at approximately 4.7x Q1/23 BV. Justification of Target Price While service finance was sold for ~20x forward EBITDA in 2021, we believe the operating environment has changed since that time, such that it may be difficult to attract a similar multiple for ECN’s other businesses. Accordingly, in calculating our target price, we contemplate three scenarios: 1) High: ECN’s businesses are sold for 12x (previously 15x) 2023E EBITDA (with sale proceeds adjusted for tax and deducting corporate-level leverage), 2) Low: ECN’s businesses take a 20% earnings hit (reflecting a less favourable environment, including slower origination growth) and are sold for 10x 2023E EBITDA (with sale proceeds adjusted for tax and deducting corporate-level leverage), and 3) Standalone: ECN continues to operate as a standalone business (assuming no further M&A) and is valued at 10x 2023E EPS. An equal-weighted blend of the three valuations takes our target price to C$3.50 (previously C$4.00), entirely reflecting a lower multiple to the high scenario.
Per share value distributable to shareholders 5.23 3.90 Stand alone value 10x 2023E EPS of $0.12 (C$0.16) 1.56 Equal weighted valuation 3.56 New target price 3.50