Mogo keeps $10.00 price target at Mackie Research

Look for fintech name Mogo (Mogo Stock Quote, Chart, News TSX:MOGO) to rerate after the market turbulence winds down, says Mackie Research analyst Nikhil Thadani, who on Monday provided clients with an update on the company.

Thadani reiterated his “Speculative Buy” rating and $10.00 target price which at press time represented a projected 12-month return of 231 per cent.

Financial platform Mogo, which currently has over 925,000 members as well as a marketing partnership with Canada’s largest news media company, last Friday announced both a three-year lending partnership with Canadian lending services company goeasy as well as the sale of the majority of its MogoLiquid loan portfolio to goeasy for a total gross consideration of $31.9 million, with the possibility of an additional performance-based payment of up to $1.5 million connected with the lending partnership.

As a reference, Mogo’s loan portfolio generated about $3 million in total revenue over the third quarter 2019.

Mogo management said the proceeds of the sale will go towards repaying one of its credit facilities which has an outstanding balance of about $28.7 million. The lending partnership is an outgrowth of a pilot program carried out between the two companies which started in October 2019. Under the program certain consumers applying for a load through Mogo, once approved, will have their loan funded by goeasy’s operating division, easyfinancial, a provider of unsecured and secured non-prime consumer loans.

Mogo will get compensation from easyfinancial for any loans funded by easyfinancial, while easyfinancial will have ownership of the loans.

“On the back of a very successful initial implementation, we're pleased to solidify a longer-term relationship with goeasy, which we view as the ideal non-prime partner for us given their deep experience in the consumer lending space and strong financial resources," said David Feller, Mogo's Founder and CEO, in a press release.

In his update, Thadani called the event key to Mogo’s move to a more capital-light model.

“Recall, we have previously highlighted a sale of the loan book or a portion of the loan book as an important catalyst to re-rate the stock higher as such a move would pave the way for a transition to a more capital light business model,” Thadani wrote.

“In our view, Mogo’s remaining loan book could provide ~$50 million of net value (net of debt, based on yield) depending on potential transaction structure. Subscription and services revenue of ~$50 million (we model ~$45 million in 2021) at a 5x multiple (versus 6x for Fintech names) implies value of ~$200 million net of corporate debt.

Together, these two components suggest an equity value of >$8/sh, before accounting for any additional monetization of the DCF portfolio,” he said.

Thadani has made revisions of his estimates, now calling for fiscal 2020 revenue of $59.5 million (was $73.6 million) and EBITDA of $4.7 million (was $11.0 million).

For fiscal 2021, Thadani estimated revenue of $72.8 million and EBITDA of $12.3 million.