Our View: Q2/24 normalized EPS was better than our forecast and consensus and 3-year guidance was increased. GSY continues to do a good job executing on its growth strategy. We think an investment in GSY offers investors exposure to a part of the Canadian financial services industry that could generate attractive investment returns over the medium- to long-term. We view the shares as attractively valued and maintain our Outperform rating and $235 target.
Key points:
Q2/24 normalized EPS of $4.10 was above our $3.99 forecast and $4.01 consensus (range of $3.90 – $4.09). The positive variance to our forecast reflected higher-than-forecast interest income, partly offset by higher- than-forecast OpEx and slightly lower-than forecast Commission revenues.
In terms of other key metrics from Q2/24: (1) originations of $827MM were slightly above our $800MM forecast; (2) gross consumer loans of $4.14B was in line with our $4.14B forecast; (3) net charge-offs of 9.3% of avg. consumer loans were largely in line with our 9.2% forecast.
3-year guidance (2024, 2025, 2026) increased (see Exhibit 2 on page 3). Key changes included: (1) gross consumer loans receivable targets were generally increased by $200MM, reflecting strong consumer demand; the delayed impact of Canadian Government cap on the maximum interest rates that can be charged; and execution of the Company’s product and distribution strategy; (2) total company revenues were increased by $50MM; (3) net charge-off rates were increased in 2025 and 2026 by +25bps; (4) operating margin targets were increased by +100bps in 2025 and 2026; and (5) ROE targets were unchanged.
Maintaining Outperform rating and 12-month price target of $235/share.
Conference call today at 9am EST; webcast link available on the Company’s website or dial-in: 1-800-836-8184.