Buy Mogo ahead of Q1 results, Mackie Research says

Ahead of quarterly results from Canadian fintech company Mogo (Mogo Stock Quote, Chart, News TSX:MOGO), Mackie Research analyst Nikhil Thadani is making no moves to his estimation of the stock, saying in an update to clients on Monday that investors can expect a lot of noise to follow on Mogo’s Q1 release but that the company looks to be setting up well for the post-COVID-19 environment.

Vancouver-based Mogo has a growing list of product offerings such as mortgages, prepaid Visa cards, ID protection, crypto-buying and selling, along with its legacy consumer loan book.

The company has its first quarter 2020 earnings release coming up on Wednesday, including a conference call after market close that day.

Mogo’s share price dropped with the market pullback in late February and March but the stock has yet to recover much of that lost ground, currently trading down 60 per cent year-to-date.

Last week, Mogo convertible debentureholders voted in favour of amendments including extending the maturity date of its 10.0 per cent debentures from May 31, 2020, to May 31, 2022, and reduction of the conversion price of the principal by 45 per cent from $5.00 to $2.75 per common share, with 94 per cent of holders voting in favour of the resolution.

President and CFO Greg Feller said the amendments will give Mogo the stability to its capital structure needed during the currently volatile time in the capital markets.

“As we emerge from this period, financial health and digital banking are two trends we expect to accelerate, and our leading digital platform positions us well for the recovery and provides the opportunity to create value for all stakeholders,” Feller said in a press release.

On the Q1, Thadani said he expects to hear from management on its progress on opex savings to be realized in the second quarter but that there will likely be some one-time charges with the Q1. The analyst said investor nervousness surrounding Mogo’s loan book performance has been an ever-present investor push-back but that if management can navigate the current environment successfully there could be benefits to the stock post-COVID.

“Due to COVID related disruptions which commenced in mid-March, we do not expect results to be relevant with regards to near term performance,” Thadani said. “We suspect the company’s loan loss provisions may go up a bit (IFRS accounting), although we suspect we have already captured this scenario in our gross margin estimate (mid 50 per cent in Q1). We would also not be surprised if the company marks down its DCF investment portfolio in light of market turmoil in March. More importantly, we expect updates on previously outlined cost savings measures for Q2. Notably, these include opex savings of $5 million per quarter and capitalizing interest payments on non-convertible subordinated debentures in Q2 (~$1.4 million per quarter cash conservation).”

Thadani is calling for revenue of $12.0 million (representing a 19.2 per cent decline) and an adjusted EBITDA loss of $1.2 million for Mogo’s first quarter.

With the update, Thadani reiterated his “Speculative Buy” recommendation and $4.00 target price, which at press time represented a projected return of 233 per cent.