goeasy Ltd., (TSX: GSY) is a Canada based company, which provides non-prime leasing and lending services through its easyhome, easyfinancial and LendCare brands. The Company offers a wide variety of financial products and services, which includes unsecured and secured instalment loans.

Key Updates:

• Strong Loan originations: In FY21, the Company registered CAD 1.59 billion of loan originations, grew by 54% on y-o-y basis from CAD 1.03 billion in FY20. On the other hand, the consumer loan receivable portfolio stood 63% y-o-y higher at CAD 2.03 billion, as compared to CAD 1.25 billion in FY20. Additionally, a higher organic loan growth coupled with the acquisition of the LendCare portfolio in the second quarter of FY21 also supported the growth.

• Encouraging Long-term Guidance: For FY22, the company expects its gross consumer loan receivables in between CAD 2.4 to 2.6 billion, significantly higher than CAD 2.03 billion in FY20. Moreover, the management expects the momentum to continue in the coming years, which would subsequently support the company’s upcoming performances. Notably, total revenue in FY22 is expected in between CAD 0.97 billion to 1 billion, which is significantly higher than CAD 826.7 million in FY21.

     Source: Company Presentation

• Constant surge in dividend payment: Historically, the company reported a constantly higher dividend distribution, backed by stable cash flow generation. In FY21, the company reported its total dividend distribution of CAD 37.4 million, which is significantly higher than CAD 23.8 million in FY20. Notably, from FY14 to FY21, the company reported a 34.5% CAGR growth in the dividend distribution, which is encouraging.

Source: Company Presentation

Risk associated with the Business:

The company registered a higher bad debt of CAD 182.0 million in FY21, which is considerably higher than CAD 134.9 million in FY20. Continuation of the above trend might dampen the company’s overall performance.

FY21 Financial Highlights:

FY21 Income Statement Highlights (Source: Company Report)

• GSY announced its full-year result, wherein the company posted its revenue of CAD 826.7 million, higher than CAD 652.9 million in FY20. Revenue growth was driven mainly by the added revenue contribution of LendCare coupled with the growth of the Company’s consumer loan portfolio.
• Total operating expenses stood at CAD 545.7 million, higher than CAD 436.4 million in pcp due to increase in salaries & benefits expenses, increase in bad debts coupled with a surge in advertising and promotion expense. Despite a rise in the operating expenses, the company reported its operating income of CAD 281.0 million, as compared to CAD 216.4 million in FY20, due to higher income.
• Net income stood at CAD 244.9 million in FY21, significantly higher than CAD 136.5 million in FY20, supported by higher operating income, partially offset by increased Interest expenses and amortization of deferred financing charges.
  

 Valuation Methodology (Illustrative): Price to Earnings-based

Analysis by Kalkine Group

Stock Recommendation:

The company reported its free cash flow from operations before net growth in gross consumer loans at CAD 260 million, which came well above the guidance of CAD 190 million to CAD 230 million. This depicts impressive operational performance and is a key positive. For FY22, the management expects to open 15 to 20 new easy finance locations, which is expected to boost the company’s loan origination. The stock has been valued by using the Price to Earnings based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Fiera Capital Corp, Equitable Group Inc etc., for the purpose. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 127.81 on March 11, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 11, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices 

Note 1: The reference data in this report has been partly sourced from REFINITIV. 

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.