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 Highlights

• Strong Loan originations: In FY21, the Company recorded CAD 1.59 billion in loan originations, a 54% increase over CAD 1.03 billion in FY20. The consumer loan receivable portfolio, on the other hand, increased by 63% year on year to CAD 2.03 billion, up from CAD 1.25 billion in FY20. Furthermore, stronger organic loan growth, along with the purchase of the LendCare portfolio in the second quarter of FY21, aided growth.
  

• Consistently improving financial matrix: Despite the challenging market, the Company maintained its momentum and generated good results in easy financial and easy home revenue. Since 2011, the company's consolidated revenue has grown at a CAGR of 15.9%, while net income has grown at a CAGR of 38.2%, illustrating the company's extraordinary success. The company is working hard to keep its winning streak going, and the scale has been expanding sequentially, which is positive.

Source: Company Presentation

• 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.

• 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.          

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. 

Financial Overview of FY 2021 (In 000’s of CAD)

 Source: Company Report 

• In FY 2021, the company posted its higher revenue at CAD 826.7 million, against CAD 652.9 million in FY20. The growth in revenue was mainly driven by the added revenue contribution of LendCare coupled with the growth of the Company’s consumer loan portfolio.

• Total operating expenses stood higher at CAD 545.7 million, compared to CAD 436.4 million in pcp. This increment in expenses was mainly 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, 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 Book Value-based

Analysis by Kalkine Group

Stock Recommendation:

The company completed another year of significant accomplishments; the fourth quarter highlighted the growth capability of its diversified non-prime lending platform, with a record CAD 507 million in loan originations and CAD 134 million in organic loan growth, resulting in a consumer loan portfolio of more than CAD 2 billion at the end of the year. Furthermore, it recorded free cash flow from operations before net growth in gross consumer loans of CAD 260 million, which was much higher than the projection. This demonstrates excellent operational performance and is a significant plus.

For FY22, the management expects to open 15 to 20 new easy finance locations, which is expected to boost the company’s loan origination. Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 112.90 on April 26, 2022. Furthermore, the 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 April 26, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Technical Analysis Summary

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