ECN Capital Corp T.ECN

Ink Research

[retiredcf]

Morning Report: ECN Capital insiders bet on a profitable lending environment ahead

There is anxiety in the market that the Fed's tightening program will choke growth and potentially lead to a recession. For example, George Goncalves, Head of US Macro Strategy at MUFG, laid out a rather gloomy case for falling inflation and economic growth on Wednesday's Real Vision Daily Briefing (free on INK Ultra Money). However, there is a competing view that Fed rate hikes could be inflationary. Former Federal Reserve capital markets trader Joseph Wang made the case on Blockworks yesterday that higher rates will spur banks to lend more (see the last segment of the podcast, free on Canadianinsider.com). That would be pro-cyclical and could underpin inflationary forces.

The stakes are high in getting the low versus high inflation call right. If the Goncalves camp is right, bond yields may have already peaked, and those low rates could support growth stocks as the economy sputters. If Wang is right, value stocks could continue on their winning ways in a high-rate environment. Some recent insider activity at ECN Capital (ECN), on the surface, seems to back up Wang's view. ECN Capital originates, manages, and advises on primarily US-based credit assets. It has two business segments: consumer secured loans, focused on prefabricated housing and recreational vehicles, and unsecured, focused primarily on credit card receivables. When it reported Q1 results on May 12th, EPS came in above guidance at US$0.06. ECN maintained its 2022 outlook for both business segments. It expects to generate 2022 secured loan segment revenue of between US$160.5 and US$181.6 million and between US$114 and US$123 million in revenue from its unsecured business. In explaining its thinking, management noted positive trends in loan application and approval volumes in its secured segment. Importantly, multiple insiders have been buying since the Q1 report.