ACD stock wins target raise at Leede

Following the company’s fourth quarter results, Leede Jones Gable analyst Greg McLeish has raised his price target on Accord Financial (Accord Financial Stock Quote, Chart, News, Analysts, Financials TSX:ACD).

On March 25, ACD reported its Q4 and fiscal 2023 results.

“After 46 years of successfully financing SMEs [small and medium-sized enterprises], this write-off is an exception to a long history of sound underwriting performance,” CEO Simon Hitzig said. “We continue to manage the effects on our balance sheet, successfully amending our main banking facility, as announced on March 18, to address the effect of our reduced equity capital. While we’re enjoying a steady increase in new applications, we remain attuned to the challenging credit environment, and continue to be highly selective in onboarding new clients.” With the additional challenge of managing with reduced capital in the fourth quarter, the portfolio gave up some growth, settling back to $476.7-million by year-end. Adjusting for one-time items relating to the single account write-off, goodwill write-off and restructuring expenses related to extending the public debentures, the company achieved adjusted net earnings of $5.8-million in 2023, up from $3.5-million in 2022, or 68 cents per common share versus 40 cents last year.”

The analyst summarized the development.

“Accord maintained a consistent top-line performance in 2023, as evidenced by finance receivables and loans (funds employed) totaling $472 mm on average, an increase of 4.9% year-over-year,” he wrote. “As a consequence of portfolio expansion and increased average yields, a record $79.7 mm was generated in 2023. The company continued to experience the repercussions of the substantial single-account loan loss that was initially disclosed in its third quarter financial statements, notwithstanding the robust revenue. This $13.1 mm fraud-related write-off impacted the tangible equity of the company in 2023. Despite the substantial loan loss provision disclosed by the organization in 2023, we maintain the perspective that Accord remains a compelling investment prospect. Following an exhaustive examination of the organization’s lending portfolio, both the organization and its lenders have acquired a comprehensive comprehension of the circumstances. In contrast to the fraudulent account, they have conveyed assurance regarding the portfolio as a whole.

In a research update to clients April 10, the analyst maintained his “Buy” rating but raised his price target on ACD from $8.25 to $8.60, implying a return of 67% at the time of publication.

McLeish thinks the company will post EPS of $0.61 on revenue of $79.9-million in fiscal 2024.

The analyst reminds of a potential upcoming catalyst.

“Accord’s management is currently exploring a number of strategic initiatives,” he noted. “Initiatives under consideration include arranging private debt financing to add to or replace current debt facilities, as well as a review of the fundamental core businesses, which might result in changes to product mix, and/or a sale of one or more non-core subsidiaries. Strategic initiatives will be undertaken for the purpose of strengthening the company’s capital position and increasing shareholder value.”