PRL stock is a buy, Eight Capital says

Following meetings with the company, Eight Capital analyst Adhir Kadve remains bullish on Propel Holdings (Propel Holdings Stock Quote, Chart, News, Analysts, Financials TSX:PRL).

The analyst says PRL is looking for topline growth, but is really focused on profitability.

“Management noted that Propel is on track to deliver monthly revenue of b/w $33-$35mm in December 2023,” he said. “This translates to $408mm in run-rate revenue (at the midpoint), and while Propel is a cyclical business (Q1 tends to be light building into Q4), it sets a strong baseline for F24 and de-risks our F24 revenue forecasts ($417mm, +31% y/y growth). Management also noted that they can double the size of their loan book while maintaining their conservative underwriting posture. When combined with Propel’s operational execution, which has led to enhanced profitability, this bodes well for the ongoing and profitable growth ahead.”

In a research update to clients September 18, the analyst maintained his “Buy” rating and one-year price target of $15.00 on Propel Holdings.

Kadve thinks PRL will post Adjusted EBITDA of $77.9-million on revenue of $318.6-million in fiscal 2023. He expects those numbers will improve to EBITDA of $119.6-million on a topline of $417.3-million the following year.

The analyst added that Propel is actively working to reduce its debt.

“Propel’s current cost of debt is 13%, and is being impacted by legacy contracts and an increasing interest rate environment,” Kadve explained. “Management notes that several of these legacy contracts were agreed upon when Propel’s scale was much smaller. Management believes that it can leverage its growing scale to reduce its cost of debt as these legacy contracts begin to lapse. Currently Propel’s debt is split 50/50, consisting of its bank partnerships and debt partnerships. One strategy to reduce its cost of debt would be to increase the amount of debt coming from its banking partners, with the company
targeting a ratio closer to 50% bank partnerships and 35% debt funds, which would lead to a reduction in the company’s interest expense to between 9-11% (all else equal), thus bolstering profitability.”