goeasy Ltd

goeasy Ltd. (TSX: GSY) is a Canada-based full-service provider of goods and alternative financial services. The Company is engaged in providing loans and other financial services to consumer.

Recent Highlights:

• The Group confirmed the appointment of Tara Deakin to the Board of Directors. Tara has a rich experience in Human Resource Management, and currently working Executive Vice-President and Chief People Officer at Spin Master Ltd.
• The Company would redeem its 5.75% convertible unsecured subordinated debentures maturing on July 31, 2022. The Convertible Debentures are redeemable at a redemption price equal to their principal amount, plus accrued and unpaid interest.
• The Company appointed Michael Eubanks as Senior Vice-President and Chief Information Officer. Michael would help in implementing a new cloud-based lending platform and improvement in the digital and mobile experience.

Q1FY20 Financial Highlights: goeasy Ltd. announced its quarterly numbers and posted revenue of CAD 167.20 million as compared to CAD 139.86 million. The growth was aided by strong momentum from interest income and commission earned, while lower lease income remained a drag. The group reported a significant growth in gross consumer loans receivable. Operating income stood higher at CAD 44.22 million as compared to CAD 38.81 million in the previous corresponding period (pcp). The increase was primarily attributed to higher revenue along with lower depreciation and amortization expense. Total operating expense increased to CAD 122.98 million from CAD 101.05 million in Q1FY19. EBITDA increased to CAD 51.1 million, reflecting a growth of 12.3% on y-o-y basis. Net income for the first quarter of FY20 stood at CAD 21.98 million as compared to CAD 18.273 million in pcp.

Q1FY20 Financial Highlights (Source: Company Reports)

Valuation Methodology: Price to Earnings based Relative Valuation (illustrative)

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

Risks: The group operates in the business consumer lending. The group might witness a delay in repayment or face a higher number of default owing to the deteriorating economic environment.

Stock Recommendation: The stock of GSY corrected ~22% so far this year due to volatility in the equity market driven by COVID 19 pandemic. The company has remained as a consistent performer with 40th successive quarter of same-store sales growth and with a history of paying a dividend for the last 16 years. The company has taken a prudent measure of focusing on digital lending capabilities on the backdrop of the shutdown of stores. The company remain fully functional during the pandemic and operating with its full workforce, which is commendable. The company’s fundamental performance remained strong with the return of equity improving to 25.8%, depicting a growth of 140 bps from the previous corresponding quarter, which is commendable. Despite a weak macro scenario, the company reported a payment collection of 93% during the month of April, which is impressive. Further, at the last traded price, the stock is offering a dividend yield of 3.4%, which is decent considering the current interest rate environment. We have valued the stock using P/E based relative valuation method and considered industry (banking services) average on NTM basis and arrived at the potential upside in high single-digit (in percentage terms). Hence, considering the aforementioned facts, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 54.50 on July 15, 2020.

GSY Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Park Lawn Corporation

Park Lawn Corporation (TSX: PLC) provides goods and services associated with the disposition and memorialization of remains in Canada and the United States.

The Company recently raised CAD 75 million via issuing senior unsecured debentures with a syndicate of underwriters co-led by CIBC Capital Markets. The Debentures carries an interest rate of 5.75% per annum, payable semi-annually, and will mature in December 2025.

Q1FY20 Financial Highlights: PLC announced its quarterly results, wherein the company reported total revenue of CAD 73.99 million as compared to CAD 45.94 million in the previous corresponding period (pcp), aided by improved performance from the USA region and supported by higher interest and other income. Cost of sales increased to CAD 13.32 million from CAD 9.32 million in pcp. Gross profit, during the quarter, stood at CAD 60.67 million as compared to CAD 40.83 million in pcp. Earnings from operations soared to CAD 7.89 million as compared to CAD 6.27 million in pcp, thanks to a higher gross profit. Operating expense increased to CAD 52.78 million compared to CAD 34.56 million recorded in Q1FY19. The increase was driven by higher general and administrative expense, coupled with an increase in advertising and selling expense and share-based incentive compensation. Net earnings for the period stood considerably lower at CAD 0.81 million as compared to CAD 3.40 million, due to higher acquisition and integration costs and an increase in other expense. The Group reported cash of CAD 27.90 million and total assets of CAD 1,512.91 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: The Group has increased its debt component, which could impact the company’s profitability in the coming days.

Valuation Methodology: Price to Cash Flow based Relative Valuation (illustrative)

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

Stock Recommendation: The stock of PLC corrected ~19% so far this year due to a weak investors’ sentiment. The company reported a solid first quarter, especially considering the challenges posed by the market in March due to the onset of COVID-19. PLC continues to adjust and adapt to daily changes resulting from the COVID-19 pandemic, and its businesses have remained open to serve families at their time of need. During the quarter, the company successfully acquired Family Legacy and Harpeth Hills, which has a promising prospect across the high-growth middle Tennessee metropolitan market, and we believe, the company would be benefitted from the acquisition in the foreseeable future. To enhance liquidity, the company has increased its credit facility, which would support the near-term working capital needs. We have valued the stock using P/CF based relative valuation method and considered industry (Personal & Household Products & Services) average on NTM basis and arrived at a potential upside of high single digit (in percentage terms). Hence, considering the aforementioned facts, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 23.73 on July 15, 2020.

PLC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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