goeasy Ltd. (TSX: GSY), is a Canada-based full-service provider of goods and alternative financial services operating in two segments: easyfinancial and easyhome. It offers merchandise leasing of household furnishings, appliances, and home electronic products to consumers under weekly or monthly leasing agreements.  

Key highlights 

Amole liquidity: In Q3 2020, the Company had an unrestricted cash position of CAD 39.5 million and borrowing capacity under its revolving credit facility of CAD 210 million, which represents CAD 249.5 million in total liquidity. The Company also has the accordion feature under its revolving credit facility of additional CAD 75 million in borrowing capacity. This liquidity provides adequate growth capital for the Company to execute its growth plan.

Increasing loan portfolio size: The gross consumer loans receivable portfolio increased by CAD 147.2 million or 14.2% to CAD 1.18 billion in Q3 2020, compared to CAD 1.04 billion in the previous corresponding quarter. The growth was fuelled by the acquisition of a consumer loan portfolio from Mogo Inc, continued net customer growth and ongoing enhancements to the Company’s digital properties.

Consecutive years of revenue growth and profitability: The Company has shown the consistent performance on all the factors of the business operations, resulting in healthy profits and EPS, since 2001.

Source: Company 

Financial overview of Q3 2020

Source: Company 

• In Q3 2020, the Company reported revenue of CAD 161.8 million, increased by CAD 5.7 million or 3.6% as compared to CAD 156.1 million in the previous corresponding period. The increase was primarily driven by the growth of the consumer loan portfolio and robust performance of the leasing portfolio offset partially by lower commissions on ancillary products.
• The Company’s operating income reached a record level to CAD 56.9 million, up by CAD 14.4 million or 33.8% as compared to CAD 42.5 million in pcp. 
• Operating margin was 35.2%, up from the 27.3% reported in Q3 2019. The increase in operating margin was mainly driven by higher revenue and lower bad debt expense during the period.
• The Company’s net income in Q3 2020 stood CAD 33.1 million, up 66.8% as compared to CAD 19.8 million in pcp. 

Risks associated with investment

The Company’s activities are exposed to a variety of commercial, operational, financial, and regulatory risks. While the precise impact of the COVID19 on the Company remain unknown, the rapid spread of the COVID-19 may hurt global economic activity. It can result in volatility and disruption to business, which could, in turn, affect interest rates, credit ratings, credit risk, inflation, financial conditions and results of operations of the Company. 

Valuation Methodology (Illustrative): Price to Book Value

Note: All forecasted figures and peers have been taken from Thomson Reuter 

Stock recommendation

The Company reported record net income during the third quarter of 2020, which was the 77th consecutive quarter of positive net income and diluted earnings per share. During the quarter, the group experienced an improved level of loan originations and a reduction in credit losses, leading to record financial results. Gradual re-opening of the economy and a reduction in the stay-at-home orders helped the Company to generate CAD 286 million in total loan originations in this reported quarter. Therefore, based on the above rationales and valuation, we have given a ‘Hold’ rating at the closing price of CAD 86.53. We have considered People Corp, Trisura Group Ltd, Fiera Capital Corp, ECN Capital Corp, etc. as the peer group for the comparison. 

Source: Refinitiv (Thomson Reuters)

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