GSY stock is a clear Buy, says Beacon

Another record quarter looks good on Canadian fintech company goeasy (goeasy Stock Quote, Charts, News, Analysts, Financials TSX:GSY), according to Beacon Securities analyst Doug Cooper, who reiterated a “Buy” rating in a Tuesday update to clients.

Mississauga-based goeasy is a non-prime leasing and lending services business with brands easyhome, easyfinancial and LendCare. The company reported its third quarter 2022 financials last month, with loan originations up 47 per cent year-over-year to $641 million and a record growth in its loan portfolio of $219 million, up 117 per cent from a year earlier. Revenue was also a record at $262 million, up 19 per cent year-over-year, and diluted EPS were $2.86 per share compared to $3.66 a year earlier.

“Amidst an uncertain economic backdrop, we continue to employ a disciplined approach to managing credit risk by focusing on the quality of our originations and underwriting standards, which further strengthen the resilience of our portfolio,” said Jason Mullins, President and CEO, in a press release.

“Similar to last quarter, the elevated loan growth over the prior year resulted in an incremental loan loss provision expense of approximately $0.40 on an after-tax per share basis in the quarter, yet the strong commercial performance and operating leverage served to produce record adjusted diluted earnings per share of $2.95,” he said.

Goeasy’s share price has been on the decline this year, returning negative 35 per cent year-to-date, but Cooper sees upside from current levels and has reiterated a $300.00 target price, representing a projected one-year return at press time of 162 per cent.

In his comments, Cooper emphasized the “true earnings power” of GSY’s current loan book, which is experiencing very strong growth. Cooper estimated the company will reach its $4 billion loan book target by the end of the second quarter 2024, which would be six months ahead of the company’s earlier projections.

“Given the loan book is becoming materially LESS risky, we believe investors should understand the earnings power those loans will create over time. A quick look back to last year when GSY stalled loan book growth during the pandemic showed loan loss as a percentage of EF revenue was ~25 per cent and one could see the true earnings power of the company,” Cooper wrote.

By his account, Cooper thinks goeasy will generate full 2022 revenue and fully diluted EPS of $1,021.0 million and $11.66 per share, respectively, and 2023 revenue and EPS of $1,215.5 million and $14.55 per share, respectively. Cooper said he anticipates goeasy will increase its dividend to about $4.00 per share, which would imply a pro forma yield of 3.5 per cent.

“In addition, given its credit availability as well as its strong free cash flow, we believe goeasy can achieve its $4 billion loan book target without any additional debt or equity. We also believe it is important to stress that as GSY diversifies its product offerings from solely instalment loans to more secured offerings such as home equity, powersport, and auto, its loan book is becoming less risky,” he said.