goeasy Ltd

goeasy Ltd. (TSX: GSY), is a Canada-based full-service provider of goods and alternative financial services. The company operates via 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 

• Divested minority equity interest in PayBright Inc:Recently, the company announced that it had divested its minority equity interest in PayBright. Under the terms of the transaction that closed on 1st January 2021, the company received total cash of CAD 23.0 million, with 655,416 common shares of Affirm, along with another 468,154 common shares of Affirm held in escrow and subject to forfeiture if certain PayBright revenue milestones are not met.
• 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 over a period of time.

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 COVID-19 virus on the Company remains unknown, the rapid spread of the COVID-19 virus 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 a 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 93.42 on January 29, 2021. We have considered ECN Capital Corp, Trisura Group Ltd, Fiera Capital Corp, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

Jamieson Wellness Inc

Jamieson Wellness Inc (TSX: JWEL) is a Canada-based company, which operates as the health and wellness company. The Company develops, manufactures and markets a brand of vitamins and natural health products. 

Key highlights 

• Guidance on higher revenue for FY2020: The management expects its revenue for FY2020to range between CAD 395.0 and CAD 400.0 million, higher from their previous guidance. This reflects strong demand for its branded products both domestically and internationally. The guidance reflects the annual revenue growth of 14.5% to 16.0%. The company also raised the expected figures of Adjusted EBITDA and EPS in a range of CAD 86.0 and CAD 88.0 million and CAD 1.11 to CAD 1.15, respectively. 

• Robust financial performance: The company reported an impressive financial performance driven by quality production capabilities and strategic partnerships, along with the product presence across more than 45 countries. From FY16 to FY19, the group’s revenue grew at a CAGR of 11.6%, while its adjusted EBITDA recorded a CAGR of 17.5% at the same tenure.

Source: Company 

• Growing International presence: The company has registered a healthy growth within the international segment through brand recognition, quality and strong distribution network. The group’s international revenue also witnessed a robust growth between 2014 to 2019. Furthermore, the company expects exponential growth from china as China’s FDA started allowing foreign players into its domestic market through new product licencing regulations.

Source: Company

• Rising Industry trends:With the recent change in consumer preference, the VMS segment in North America has delivered consistent growth over the past few years, and it is expected to retain the momentum in the coming years.

Source: Company 

Financial overview of Q3 2020 (In CAD)

Source: Company 

• The company reported higher sales, increased by 19% to CAD 105.5 million in Q3 2020, against CAD 88.5 million in the previous corresponding period. The rise in revenue was due to higher revenue recognition from Jamieson Brands and Strategic Partners segment through strong point-of-sales.
• Earnings from operation stood at CAD 17.8 million, compared to CAD 13.2 million in pcp. Higher revenue was the sole reason behind higher earnings from the operation, partially offset by a rise in the cost of sales higher S&A expenses.
• The company managed to improve its operating margin by 190 basis points in Q3 2020, which stood at 16.9%, against 15% in Q3 2019.
• The company's net income was CAD 12.1 million, increased by 147%, against CAD 4.9 million in the previous corresponding period. 

Risks associated with investment 

Delay in the company's products regulatory approvals might dampen its product pipeline, which might impact the company's overall performance. Furthermore, some other risks are also present that include consumer trends, competition, supply chain, raw material prices, foreign exchange, etc. 

Valuation Methodology (Illustrative): EV to EBITDA

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

Stock recommendation

The company has reported an impressive financial performance driven by quality production capabilities and strategic partnerships, along with the product presence across more than 45 countries. The group’s international revenue also witnessed robust growth. Furthermore, they expect exponential growth from china. Based on strong demand for their branded products both domestically and internationally, the management expects its revenue for FY2020 to range between CAD 395.0 and CAD 400.0 million, reflecting an annual revenue growth of 14.5% to 16.0%, looks encouraging. Therefore, based on the above rationales and valuation, we have given a “Hold” rating at the closing price of CAD 35.85 on January 29, 2021.

Source: Refinitiv (Thomson Reuters)

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.