While its fourth-quarter 2021 financial results exceeded expectations, Scotia Capital analyst Phil Hardie reduced his projections for Propel Holdings Inc. after its 2023 guidance fell beneath his estimates.
Shares of the Toronto-based fintech company fell 3.4 per cent on Monday with the premarket release, including core earnings per share of a loss of 3 cents. That was a year-over-year improvement of 2 cents and ahead of the estimate of both Mr. Hardie and the Street of a 10-cent loss.
“As expected, Propel’s Q4/21 results were characterized by strong loan and origination growth but profitability margins were pressured,” the analyst said. “This largely reflected what we view as a sales strain reflecting elevated operating expenses driven by data and customer acquisition-related costs and provision for expected losses from performing loans. We expect a strong rebound in profitability and earnings growth over the coming seasonally stronger quarters.”
“Management provided annual financial targets for 2022 and 2023. Overall, the guidance implied better profitability margins but lower revenues than our forecast initially reflected. We continue to have a strong outlook for EPS growth in 2022E and 2023E but have reduced our forecast”
Maintaining a “sector outperform” rating for Propel shares, Mr. Hardie cut his target to $16, below the $17.25 average, from $18.
“We estimate that PRL trades at 18.9 times P/E [price-to-earnings] on our 2022 estimates and 5.9 times P/E on our 2023 estimates, despite its robust growth profile,” he said. “Looking ahead, we are expecting EPS growth to average almost 130 per cent in 2022 and 2023, with the expansion likely to be driven by the deepening and expanding of its bank partnerships, rather than building a household digital brand. We believe a continued borrower migration up the credit ladder is not only likely to represent a solid source of growth but also likely serves to de-risk Propel portfolio and operating profile.
Elsewhere, Canaccord’s Scott Chan trimmed his target to $15.50 from $16.75 with a “buy” rating.