A Huge Upside Potential for goeasy Ltd. (TSE: GSY)

Company Overview Goeasy Ltd. (TSE: GSY) is a Canadian company that provides various financial services to customers. The company first operated in 1990, and has become one of the most successful companies in Canada, with over 2,000 employees. Two major business segments are easyfinancial and easyhome, both consists of different kinds of financial services to customers who have difficulties accessing traditional banks. Now, the company is worth around $1.4 billion with a 12.8% CAGR since 2001. It is a company that has a quarterly dividend of $0.66, now trading at $150.04 CAD. Business Segments – easyfinancial Easyfinancial is a financial service that aims to provide “installment loans to non-prime customers” (to people who don’t have full access to traditional bank financial services. It offers  a variety of financial products from unsecured to real estate secured installment loans from “$500-$45,000 at interest rates starting at 19.99%, with repayment terms of 9 to 60 months for unsecured loans and up to 10 years for secured loans”.  The company uses what is called, omni channel, a type of retail that connects and integrates different kinds of shopping available to consumers (including online, in a physical store or by phone), that allows customers to transact through multiple delivery channels. According to the company’s annual financial report of 2020, it generated $510 million revenue and $243 million operating come with a profit margin of 48% ($243 million / $510 million) which is an amazing rate for a company like goeasy. As of December 31, 2020, the company has 266 stores and national loan office across the country with a gross consumer loans of $1.25 Billion. Business Segments – easyhome Another important segment of the company is easyhome. It is the largest lease-to-town company in Canada, provides a variety of services including weekly or monthly leasing agreements that allows people who are lack of credit or cash to be able to purchase household furniture and appliances. Basically, the leasing transactions will be acted as an alternative to the financing offered by traditional retailers. According to the program’s policy, it offers a fixed annual interest rate of 29.99%. in 2007, the company expanded its business size in almost 100 easyhome leasing locations across the country in order to enforce the customer relationship. As of December, 2021, the company has offered unsecured loans up to $15,000 in 113 easyhome locations across the country which allows the company to further expand its points of distribution and investments. Furthermore, easyhome generated $143 million revenue and $31.1 million operating income with a profit margin of 22%. The company has $49.4 million of lease assets and 161 store, as of December 31, 2020. First Quarter Earning Release 2021 During the first quarter, the company benefited from a continuous increase in demand of financial services and great control over credit performance. According to the information provided by the company, its loan portfolio has gone up 10% which is worth around $1.28 billion. It generated $272 million in total loan origination, up 13% compared to the 242 million year-to-year. Its adjusted quarterly net income was $36.7 million, has gone up by 67%. More importantly, the adjust quarterly diluted earnings per share has gone up by 66% to $2.34. The company has a strong indicator for maintaining a stable and steady growth in the long run, according to the release. Besides that, the company pays good dividend of $0.66 quarterly. This makes the stock as a good choice for dividend investors. Overall, the company has a strong financial position and a steady growth for the long run with increasing demand, which makes the company a good investment for long term investors. easyfinancial Revenue of $133 million, up 1% Secured loan portfolio grew to $162 million, up 33%, 56% of net loan advances in the quarter were issued to new customers, down from 59% 51% of applications were acquired online, up from 46% Average loan book per branch improved to $3.8 million, an increase of 2% The delinquency rate on the final Saturday of the quarter was 4.4%, down from 5.4% Record operating income of $71.7 million, up 39% Operating margin of 54%, up from 39% easyhome Record revenue of $36.8 million, up 4% Same store revenue growth of 4.9% Consumer loan portfolio within easyhome stores increased to $53.1 million, up 30% Revenue from consumer lending increased to $6.6 million, up 20% Record operating income of $9.0 million, up 29% Record operating margin of 24.5%, up from 19.8% Overall 44th consecutive quarter of same store sales growth 79th consecutive quarter of positive net income 2021 marks the 17th consecutive year of paying dividends and the 7th consecutive year of dividend increases Total same store revenue growth of 1.7% $6.9 million in loan protection claims payments, up 19% from $5.8 million in 2020 Adjusted return on equity of 29.5% in the quarter, up from 25.8% Fully drawn weighted average cost of borrowing reduced to 4.8%, down from 5.5% Future Outlook With the successful acquisition of LendCare Holdings Inc., a Canadian point-of-share consumer finance and technology company, for #320 million, it is expected to accelerate goeasy’s growth in the consumer credit market through the expansion of market size, product variety and distribution platform. “Looking forward, we expect consumer demand to continue improving throughout the summer months as vaccination distribution accelerates. Our expansion through the acquisition of LendCare into point-of-sale financing verticals such as power sports and home improvement, will also aid in driving growth of the portfolio,” Mr. Mullins concluded, “On a consolidated basis, we expect to finish the second quarter with nearly $1.8 billion in consumer loan balances. With the economy on the road to recovery, the upcoming launch of our auto-loan product, and the addition of LendCare, we remain on track to our goal of becoming the largest and best performing lender in the $200 billion non-prime consumer credit market.” (from the company’s release) Definitely, the acquisition of LendCare will provide a strong synergy to the company. However, investors should focus whether the acquisition really provides a long-term benefit for goeasy. The acquisition required a considerable amount of cash which could be used for other projects and investment. But, the company has shown a strong indication that the acquisition of LendCare will bring a long-term consistent benefit to the company. Analyst Rating As of the date of writing, 6 buy ratings with a consensus price target of $170.6 CAD (12.51% upside) from MarketBeat. In the past month, National Bank Financial, National Bankshares, Raymond James and BMO Capital Markets all boosted its price target with a target price from a range from $167 CAD to $185 CAD. According to WSJ Markets, 5 out of 6 analysts suggest the company as buy with a target price range from $200 CAD to $166 CAD. A similar pattern could also be found on Yahoo Finance and TIPRABNKS. Final Thoughts Strong increase in demand of alternative financial services. The acquisition of LendCare will expand its business segment and services. The steady growth rate in both revenue and profit with a good dividend payment. Consistent consensus on buy with a range of 15% to 20% upside potential Resources https://goeasyltd.gcs-web.com/corporate-profile  https://ca.finance.yahoo.com/quote/GSY.TO/analysis/ https://www.tipranks.com/stocks/tse:gsy/forecast https://www.marketbeat.com/stocks/TSE/GSY/price-target/ https://www.globenewswire.com/en/news-release/2021/04/30/2220926/0/en/goeasy-Ltd-Completes-Acquisition-of-LendCare.html

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TOTHEMOON123

Jun 11, 2021

37.15%

Change % Since Posting

151.60

Price When Posted

56.32

Change Since Posting

GSY.TO

goeasy Ltd.

207.92

-2.43
-1.16%
Current Price

A Huge Upside Potential for goeasy Ltd. (TSE: GSY)

bullish

Company Overview

Goeasy Ltd. (TSE: GSY) is a Canadian company that provides various financial services to customers. The company first operated in 1990, and has become one of the most successful companies in Canada, with over 2,000 employees. Two major business segments are easyfinancial and easyhome, both consists of different kinds of financial services to customers who have difficulties accessing traditional banks. Now, the company is worth around $1.4 billion with a 12.8% CAGR since 2001. It is a company that has a quarterly dividend of $0.66, now trading at $150.04 CAD.

 

Business Segments – easyfinancial

Easyfinancial is a financial service that aims to provide “installment loans to non-prime customers” (to people who don’t have full access to traditional bank financial services. It offers  a variety of financial products from unsecured to real estate secured installment loans from “$500-$45,000 at interest rates starting at 19.99%, with repayment terms of 9 to 60 months for unsecured loans and up to 10 years for secured loans”. 

The company uses what is called, omni channel, a type of retail that connects and integrates different kinds of shopping available to consumers (including online, in a physical store or by phone), that allows customers to transact through multiple delivery channels. According to the company’s annual financial report of 2020, it generated $510 million revenue and $243 million operating come with a profit margin of 48% ($243 million / $510 million) which is an amazing rate for a company like goeasy. As of December 31, 2020, the company has 266 stores and national loan office across the country with a gross consumer loans of $1.25 Billion.

 

Business Segments – easyhome

Another important segment of the company is easyhome. It is the largest lease-to-town company in Canada, provides a variety of services including weekly or monthly leasing agreements that allows people who are lack of credit or cash to be able to purchase household furniture and appliances. Basically, the leasing transactions will be acted as an alternative to the financing offered by traditional retailers. According to the program’s policy, it offers a fixed annual interest rate of 29.99%. in 2007, the company expanded its business size in almost 100 easyhome leasing locations across the country in order to enforce the customer relationship. As of December, 2021, the company has offered unsecured loans up to $15,000 in 113 easyhome locations across the country which allows the company to further expand its points of distribution and investments. Furthermore, easyhome generated $143 million revenue and $31.1 million operating income with a profit margin of 22%. The company has $49.4 million of lease assets and 161 store, as of December 31, 2020.

 

First Quarter Earning Release 2021

During the first quarter, the company benefited from a continuous increase in demand of financial services and great control over credit performance. According to the information provided by the company, its loan portfolio has gone up 10% which is worth around $1.28 billion. It generated $272 million in total loan origination, up 13% compared to the 242 million year-to-year. Its adjusted quarterly net income was $36.7 million, has gone up by 67%. More importantly, the adjust quarterly diluted earnings per share has gone up by 66% to $2.34.

The company has a strong indicator for maintaining a stable and steady growth in the long run, according to the release. Besides that, the company pays good dividend of $0.66 quarterly. This makes the stock as a good choice for dividend investors. Overall, the company has a strong financial position and a steady growth for the long run with increasing demand, which makes the company a good investment for long term investors.

easyfinancial

  • Revenue of $133 million, up 1%
  • Secured loan portfolio grew to $162 million, up 33%,
  • 56% of net loan advances in the quarter were issued to new customers, down from 59%
  • 51% of applications were acquired online, up from 46%
  • Average loan book per branch improved to $3.8 million, an increase of 2%
  • The delinquency rate on the final Saturday of the quarter was 4.4%, down from 5.4%
  • Record operating income of $71.7 million, up 39%
  • Operating margin of 54%, up from 39%

easyhome

  • Record revenue of $36.8 million, up 4%
  • Same store revenue growth of 4.9%
  • Consumer loan portfolio within easyhome stores increased to $53.1 million, up 30%
  • Revenue from consumer lending increased to $6.6 million, up 20%
  • Record operating income of $9.0 million, up 29%
  • Record operating margin of 24.5%, up from 19.8%

Overall

  • 44th consecutive quarter of same store sales growth
  • 79th consecutive quarter of positive net income
  • 2021 marks the 17th consecutive year of paying dividends and the 7th consecutive year of dividend increases
  • Total same store revenue growth of 1.7%
  • $6.9 million in loan protection claims payments, up 19% from $5.8 million in 2020
  • Adjusted return on equity of 29.5% in the quarter, up from 25.8%
  • Fully drawn weighted average cost of borrowing reduced to 4.8%, down from 5.5%

 

Future Outlook

With the successful acquisition of LendCare Holdings Inc., a Canadian point-of-share consumer finance and technology company, for #320 million, it is expected to accelerate goeasy’s growth in the consumer credit market through the expansion of market size, product variety and distribution platform.

“Looking forward, we expect consumer demand to continue improving throughout the summer months as vaccination distribution accelerates. Our expansion through the acquisition of LendCare into point-of-sale financing verticals such as power sports and home improvement, will also aid in driving growth of the portfolio,” Mr. Mullins concluded, “On a consolidated basis, we expect to finish the second quarter with nearly $1.8 billion in consumer loan balances. With the economy on the road to recovery, the upcoming launch of our auto-loan product, and the addition of LendCare, we remain on track to our goal of becoming the largest and best performing lender in the $200 billion non-prime consumer credit market.” (from the company’s release)

Definitely, the acquisition of LendCare will provide a strong synergy to the company. However, investors should focus whether the acquisition really provides a long-term benefit for goeasy. The acquisition required a considerable amount of cash which could be used for other projects and investment. But, the company has shown a strong indication that the acquisition of LendCare will bring a long-term consistent benefit to the company.

Analyst Rating

As of the date of writing, 6 buy ratings with a consensus price target of $170.6 CAD (12.51% upside) from MarketBeat. In the past month, National Bank Financial, National Bankshares, Raymond James and BMO Capital Markets all boosted its price target with a target price from a range from $167 CAD to $185 CAD. According to WSJ Markets, 5 out of 6 analysts suggest the company as buy with a target price range from $200 CAD to $166 CAD. A similar pattern could also be found on Yahoo Finance and TIPRABNKS.

 

Final Thoughts

  • Strong increase in demand of alternative financial services.
  • The acquisition of LendCare will expand its business segment and services.
  • The steady growth rate in both revenue and profit with a good dividend payment.
  • Consistent consensus on buy with a range of 15% to 20% upside potential

 

Resources

https://goeasyltd.gcs-web.com/corporate-profile 

https://ca.finance.yahoo.com/quote/GSY.TO/analysis/

https://www.tipranks.com/stocks/tse:gsy/forecast

https://www.marketbeat.com/stocks/TSE/GSY/price-target/

https://www.globenewswire.com/en/news-release/2021/04/30/2220926/0/en/goeasy-Ltd-Completes-Acquisition-of-LendCare.html

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9/ 10

Confidence

6-12 Months

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