CIBCHave a $230.00 target. GLTA
EQUITY RESEARCH
November 10, 2024 Earnings Update
GOEASY LTD.
Credit Trends Remain Stable
Our Conclusion
goeasy reported what we felt was a strong quarter. Earnings were 5% above
consensus, and loss rates remained stable despite concerns regarding the
recent uptick in delinquencies. Our interpretation is that management
deliberately tightened collection practices on the secured lending portfolio
specifically, which pushed a handful of borrowers into the delinquency
buckets. However, the severity of loss given default is much more benign in
secured lending, which explains why the higher delinquencies did not (and
are not expected to) result in a higher loss rate. Management signaled stable
credit trends over the next few quarters and potential for an improvement to
the charge-off ratio in 2025. Another important takeaway is that longer-term
commercial guidance was unchanged, despite the “miss” on Q3 revenue
yield (which was partly explained by an accounting adjustment). Overall, we
thought third-quarter results were strong and encouraging on several fronts.
Key Points
Solid earnings beat on lower opex. Adjusted diluted EPS came in ~5%
above consensus, driven by lower-than-expected opex. Salaries and benefits
expense were below trend in the quarter, partly due to a reduction in variable
compensation. Notwithstanding the company’s strong performance YTD, it is
a bit behind the internal plan and certain internal goals for the year.
Credit was solid – both the current quarter results and future outlook.
The credit loss rate declined slightly on a sequential basis, and the
delinquency ratio was lower as well. On the conference call, management
suggested that both the delinquency and loss rates should be relatively
stable for the next few quarters, and that recent tightening (in combination
with declining interest rates) should allow for delinquencies and loss rates to
trend lower in 2025. Overall, we felt that the results and commentary on the
call were very positive regarding the trajectory of credit considering the
concerns that emerged in Q2 regarding the notable uptick in delinquencies.
Longer-term commercial guidance was unchanged. In light of the
volatility that occurred following the downward revision to Q3 yield guidance
(see our take here), we felt it was constructive that management made no
changes to longer-term commercial targets. Part of the “miss” was explained
by an accounting adjustment that changed the geography of certain items.
A shortlist has been identified for Jason’s successor. On the conference
call, management indicated that it is at a stage of the search process where
it has narrowed down the list to a smaller handful of people. It sounds
unlikely that a decision will be made by the time of Jason’s departure
(January 1), but current Chairman and former CEO David Ingram is prepared
to step in on an interim basis to extend the search window. goeasy
emphasized how important the decision is, which is why the company wants
to take its time and get it right.