goeasy Ltd

goeasy Ltd (TSX: GSY) is a Mississauga, Ontario based Company providing lending services and non-prime leasing services through easyfinancial and easyhome businesses. The Group offers a wide range of financial services and products such as secured instalment loans and unsecured instalment loans. 

Key Highlights

• The company announced the appointment of Farhan Ali Khan as Senior Vice-President of Corporate Development and Investor Relations, with effect from September 14, 2020. 

Q2FY20 Financial Highlights: GSY impresses its second-quarter results, wherein the company reported revenue of CAD 150.677 million, improved from CAD 147.854 million in the previous corresponding period (pcp). The increase was driven by higher interest income and stable performance from lease revenue, partially offset by a lower commissioned earned. The period was marked by strong credit growth, while the group witnessed improvement in credit losses. The company reported total operating expenses of CAD 96.683 million, lowere from CAD 106.923 million in pcp, which resulted in a higher operating income of CAD 53.994 million, as compared to CAD 40.931 million in pcp. Net income was reported at CAD 32.542 million, as compared to CAD 19.568 million in Q2FY19. The company posted the cash balance at CAD 54.765 million, while total assets were reported at CAD 1,352.219 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: Due to the current economic downturn, the company might face setbacks from higher credit losses, which might lead to a slide in the overall performances.

Valuation Methodology: Price to Book Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of GSY soared 91% in the last six months. The Company reported an improvement in financial performance in the first half of the financial year 2020 and the second quarter of the financial year 2020. Both the top-line and the bottom-line performance have improved with decent profitability margins for the period. The revenue from core operations has improved, with an increase in the cash balance. GSY controlled its operating expenses in the Q2 FY2020, which improved financial performance. One of the major highlights was the low credit losses, which came in better than the industry. The company reported an improved EBITDA margin of 43.1%, as compared to 32.2% in the previous corresponding quarter, which is a key positive amidst the current downturn. The company witnessed moderate growth in the loan portfolio during the month of June and July. The company believes that consumer demand for credit to be gradually rebuilding and it expect to grow the loan portfolio by approximately 3% to 5% in the third quarter, improving further thereafter. We have valued the stock using Price to book value based relative valuation method and have arrived at a target upside of single-digit (in percentage terms). For the said purposes, we have peers like ECN Capital Corp, People Corp etc. Hence, considering the aforementioned facts, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 63.62 on September 29, 2020.

GSY daily technical chart. Source: Refinitiv, Thomson Reuters

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