ECN Capital Corp T.ECN

TD Earnings Preview

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ECN Capital Corp.

(ECN-T) C$8.24

Q1/21 Outlook Event

ECN is expected to report Q1/21 results on May 12. We forecast Q1/21 adjusted EPS of US$0.08; in line with guidance of US$0.07-US$0.08 and consensus of US$0.08.

Impact: NEUTRAL

We forecast pre-tax adjusted operating income from HI of US$19.2mm, up 28% y/y reflecting strong originations. We expect HI originations of US$488mm, up 30% y/y reflecting the new one-stop platform and strong growth in HVAC and windows/doors as several competitors have retrenched. We expect earnings growth to accelerate as early as next quarter. As originations shift away from lower margin solar originations, we should see gain-on-sale margins improve in 2021. Additionally, starting in Q2/20, HI reduced servicing fees to funding partners in return for accelerated and larger funding commitments ahead of contractual maturities. Accordingly, in Q2/21 pre-tax earnings growth could accelerate materially. In the quarter, HI signed an agreement with Sam's Club to provide home improvement services through its dealer and funding partners. While our 2022 estimate does not reflect the benefit of this new arrangement, we believe the impact could be meaningful. We expect more information on this arrangement on the Q1/21 call.

We forecast pre-tax adjusted operating income from MH of US$7.0mm, up 25% y/ y reflecting 25% y/y growth in originations and improving margins. We forecast MH delivering a very strong 2021 with origination growth of 45% supported by a number of new initiatives as discussed in our Investor Day note dated February 5 (link).

We forecast Kessler earnings increasing 7% y/y reflecting the gradual improvement in partnership and marketing platforms. The pipeline of potential transactions suggest that this business should show solid momentum later in 2021.

TD Investment Conclusion

We arrive at our target price of C$10.00 by applying 12.5x forward P/E (2022E EPS). With the write-off of California solar and a further write-off of legacy airline assets, we believe the balance-sheet-light business model, supports a P/E-based valuation. Our BUY rating is supported by the upside to our target price, a reliable funding model, the resilience of HI and MH, and strong origination momentum.

[Blueswin]

Ithink this new agreement with Sam'club is another positive! HI signed an agreement with Sam's Club to provide home improvement services through its dealer and funding partners. While our 2022 estimate does not reflect the benefit of this new arrangement, we believe the impact could be meaningful. We expect more information on this arrangement on the Q1/21 call