EH.to - Easyhome Ltd.

[bz1516]

Easyhome, EH-TSX, is a consumer merchandise rental company with 240 locations across Canada and a growing standalone consumer loan store which they are in the process of building out. The term standalone is used at EH to distinguish between the new financial units which stand alone and the original financing kiosks that were located within the rental stores.  The EH investment thesis is about the growth of the standalone financing unit.

 

EH’s just issued guidance to have 225 financial units by 2016, up from 112 today.  Currently there are 68 kiosks inside the merchandise leasing locations and 43 standalone locations.  All the new units from now on will be standalone.  The standalone units have much greater volumes and profitability, but also higher break evens due to overhead.  The higher profit standalones are thus going from 43 units currently to 136 units by the end of 2016.  The recently reported sharp increase in profitability was due mostly to the standalone units. 

 

Management continues to demonstrate confidence in its new financial units as indicated by the new three year forecast as well as increasing new store openings in 2014 vs 2013.  Initial 2014 guidance is for 30-35 new units.  In the spring EH launched its internet site for making loans.  The site has the capabilities of producing loans directly or in concert with the bricks and mortar locations.  So far it appears very successful.  Its not possible to say at this point just what role the new internet site played in the increased Q3 profitability.  The company seems to be indicating though that combining the internet with the bricks and mortar produces a more powerful business model.

 

In the just released Q3 report eps were up 40%, mostly due to the impact of the growing financial unit.  This was the first quarter that results from the financial unit had a dramatic impact on total eps.  At some point in 2014 earnings from the financial unit will exceed the earnings from the merchandise leasing unit.  In their presentations EH lays out the profitability of the individual standalone financing units.  It is hard to say what the limits may be for individual store profitability as the standalone concept is only two years old and management believes the financial units will not reach maturity until 5 years. If the company’s three year guidance for number of financial units were used, that would add conservatively between $25mm and $30mm to operating income by 2016.  To put these numbers in perspective net income before taxes should be in the $20mm range for 2013.  Considering that corporate overhead is already in place, that would increase 2016 net income before taxes to more than double the run rate from Q3 in 2013.   

 

The company’s existing merchandise leasing business has finance kiosks in about a third of its units. The stores that don’t have them are for the most part limited by their lease terms. The merchandise stores are 3500-4000 sq ft. The third of the stores that have finance units in the leasing stores have 10’ x 10’ kiosks. The standalone finance stores are 800-1000 sq ft. The standalone finance locations reach breakeven in 6 months while it takes the merchandise stores 18 months to reach breakeven.

 

Management appears to be very cautious and deliberate in everything they do.  They have taken a good amount of time to test the concept and have very cautiously extended their commitment to the new concept stores.  At this point because of their very cautious style, their increased confidence is part of the story.  After getting to know the company I see nothing in their operations which should lead to big surprises, though there could be a disappointment with the number of new openings or new store results in any single quarter.  Profitability has been very consistent over the years.

 

The company sees this opportunity in the small consumer installment loan market as created by the exit of Wells Fargo and HSBC from the market, leaving only Citibank in the market with under 200 stores. I’m not certain of the status of Citi at this point.  At the peak the market was served by 400 standalone units. These units serve a niche in between bank credit cards and the payday lender markets. The company loans are made from 6 months to 3 years, whereas payday loans are under 60 days. Rates are considerably below the pay day market, and moderately above the upper end of the bank card market. One of the reasons for the higher rates is their more relaxed underwriting standards produce a bad debt ratio of 15%, higher than what bank cards are experiencing.

 

My eps forecast for 2013 is $1.18, based on management guidance. Consensus is $1.20 for 2013 and $1.62 for 2014.  The PE ratio is currently 8.5x 2014 consensus eps.  The rapid growth reduces earnings considerably due to the losses incurred during the first 6 months of operation of each new financial unit. Though current earnings are very strong, the full earnings potential is not reflected in current earnings for this reason.  Eventually they will be increasingly reflected in higher earnings as the build out progresses.

 

The stock pays a div. of 2.5%. It is conservatively valued at just under 2.0 BV, considering the expected growth rate and dividend.  The stock is traded thinly and patience is required to build a large position.  It has a market value of $180mm.  Catalysts are quarterly earnings reports while the concept is ramped up and uncertainty reduced.

 

[beerbaron]

Owned EasyHome before and after the employee fraud and made some profit on it. About a year ago I sold for the following reasons:

• Altough EasyFinancial is a nice growth model, it requires a lot of capital
  
• To fund EasyFinancial they considerably increased their borrowing
  
• Their borrowing cost was really high and I could not get comfortable with the increased leverage
  
• When 4 of the board members qui 2 years ago it was because of a dispute over how much leverage to take for EasyFinancial
  
• Management has not been totally honest when the employee fraud happened. They added charges and claimed they could not foresee what these continous charges would be.
  

 

If you could live with the leverage it's not a bad company. I would much rather own the debt, too bad it's not publicly traded!

 

BeerBaron

[bz1516]

I think the price of the stock may be down since the earnings report just because the stock had run 40% and who's to say it is worth more than that size price increase on a first time blowout quarter?

 

Beerbaron, I did take a look at the financials after your comment.  I agree there is more leverage now than there would have otherwise been without the expansion of the financial division, but it seems to me they had zero leverage before or close to it and now their debt/equity ratio is closer to optimizing the resources of the company.

 

What would the alternative have been with those directors getting there way and not resigning?  Looks to me the company today would be operating a zero growth chain of merchandise rental stores, an untenable situation over the long run.

 

As for the cost of financing, it is coming down with the growth of the loan book and the company, but if you look at the interest paid and the interest rate received the cost of borrowing is a non issue.

[beerbaron]

They really open the valve on the credit, I liked Easy Financial, it was the basis of my thesis of investing in the company. But debt grew faster than I was comfortable. Debt to coverage ratio was getting to a dangerous level, don't know what it is today tough.

 

Directors were all for Growing EasyFinancial but not at a 9% interest rate.

 

By the way, why do you think banks would lend at 9% with the underlying loan portfolio in case of default? Because, they think it's pretty risky.

 

BeerBaron

 

 

[Guest 50centdollars]

Forsure banks will ask for higher rates. The customers of easyhome have bad credit. This is no secret. If I was lending money to the company I would ask for a higher rate as well. I will say tho that the Easyhome customer has no other option. There credit is screwed so they can't borrow money from anyone else. If you look at bad write offs the easy home has done in the past it's usually around 20% of the loans. So there is risk.

[hardcorevalue]

I could never get passed the value proposition of the service to consumers. It's a massive rip off. They prey on low income Canadians to leverage themselves further on Canada's low interest rates.

 

http://www.cbc.ca/player/Shows/Shows/Marketplace/Web+Exclusives/ID/1458712634/

 

Their leveraged capital structure combined with the highly indebted Canadian consumer who is drunk on their real estate bubble house value creates a very material likelihood of blowing up IMO.

 

 

[bz1516]

Raymond James raised target to $16 from $15 today, maintaining Outperform. Yesterday Paradigm Securities increased target from $16 to $18.50 with a Buy rating.

[Guest 50centdollars]

BMO Analyst:

 

easyhome reported Q3/13 EPS of $0.31, in line with our estimate and consensus

of $0.29, and up 42% from last year. EBITDA of $8.3 million were above our

forecast of $7.5 million; higher-than-expected interest expense, tax rate and

share count led to EPS being in line. Revenues in both segments were in line

with our estimates; Leasing EBIT was in line, easyfinancial EBIT were above

our forecast and corporate costs were higher than expected. With Q3 results,

easyhome rolled its Franchise segment into Leasing for reporting. easyhome

also announced on November 12 the closing of its previously announced

bought-deal equity financing (already reflected in our estimates prior to Q3/13).

 

With Q3/13 results, easyhome introduced 2014 targets that were largely in line

with our expectations. The company also more formally reiterated its longerterm

targets for a $250 million loan book (growth of $50 million/year) and

easyfinancial margins of 32% by 2016 – this would require further external

funding, which in our model is assumed to be debt financed. We have lowered

our EPS estimates to $1.06 for 2013E and $1.20 for 2014E (due largely to

higher interest expense), and have introduced a 2015E EPS estimate of $1.49.

 

Shares of easyhome have performed well over the past several months, and the

stock now trades at a premium to its peer group (including rent-to-own retailers

and alternative lenders). Earnings visibility appears to be improving, and we

believe that strengthening the company’s equity position could open the door to

lower-cost borrowings when additional financing is required in the future. Our

target price of $15 is based on 7.0x 2014E EV/EBITDA, at a premium to the

peer group reflecting easyhome’s higher forecasted earnings growth rate.

easyhome is rated Market Perform.

 

 

[beerbaron]

Raymond James raised target to $16 from $15 today, maintaining Outperform. Yesterday Paradigm Securities increased target from $16 to $18.50 with a Buy rating.

 

Take Raymond James numbers with a grain of salt. I think they have 1M share they did in a private placement 4 years ago.

 

BeerBaron

[bz1516]

Easyhome’s prospects as an investment is all about their new financial division.  It is now at a size where it is large enough for its growth rate to take over the trajectory of the company’s overall growth rate.  Q3 eps were up 40%, the first time anything near that magnitude has occurred. 

 

Their quarterly earnings have been somewhat lumpy, making it difficult to forecast on a quarterly basis.  That said I’m forecasting eps fd of $.40 for Q4.  That would put full year eps fd at $1.32.  Consensus is $.29 for the quarter with the high estimate at $.38.  Full year consensus is $1.14 for the year with the high est. at $1.25.  My 4Q est. would translate to $1.32 for the year.

 

Should EH report eps at the high end of the range as I expect, that would establish more confidence in the market that its new more rapid eps growth rate was not a flash in the pan but would now carry forward over the company’s new 3 year “guidance” period. 

 

[Goodresult]

Any idea when they might report earnings? Would sure be nice if they hit $1.32 for 2013. Would be a PE of 11.6 at today's $15.32 price level. If they grow as projected, this seems very cheap. At the consensus $1.14, PE would be 13.4, which is still very cheap given the projected growth rate. After reading their MD&A and other financial reports, they clearly present themselves professionally and seem to have a solid plan. They now have a little bit of a track record on their new EasyFinancial stores, and so far they are able to execute per their plan. Q4 could go a long ways towards raising their credibility. A key factor to me is the big reduction in competition from the Great Recession.

[Guest 50centdollars]

Any idea when they might report earnings? Would sure be nice if they hit $1.32 for 2013. Would be a PE of 11.6 at today's $15.32 price level. If they grow as projected, this seems very cheap. At the consensus $1.14, PE would be 13.4, which is still very cheap given the projected growth rate. After reading their MD&A and other financial reports, they clearly present themselves professionally and seem to have a solid plan. They now have a little bit of a track record on their new EasyFinancial stores, and so far they are able to execute per their plan. Q4 could go a long ways towards raising their credibility. A key factor to me is the big reduction in competition from the Great Recession.

 

Last year it was around mid march. It will probably be the same this year. I agree with you that the company is on the right track here.

[bz1516]

A top pick from an analyst interviewed on BNN last week.

 

Here is the blurb.

 

<< Easyhome (EH TSX) Held by Fund. Recently purchased yesterday at $16.40

 

Big beneficiary of the demise of The Cash Store in Ontario with the opportunity to consolidate their best customers and potentially locations. Trend moving away from payday to short term loans fits their growth model. One-year target is $22.50 simply based on growth in their earnings power >>

 

 

 

Personally I see the main investment thesis as being the vacuum left by HSBC, Citi and the other major banks on the upper end of their market, rather than the exit of the Cash Store on the lower end, but an upgrade is an upgrade. $22.50 is the highest target yet on EH. This may have contributed to the increase in share price the last couple days.

 

[bz1516]

Easyhome extends large eps increase from last quarter ..........

 

After the close yesterday EH reported a very nice quarter, up 50% after normalizing the 2012 comparison period. This is a continuation of the new trend established last quarter. I like the more than 10% increase in 2014 guidance for the financing unit as well. This report should catch the attention of analysts. They may all increase targets and go to buy now that they have had a second quarter of results that confirm the first blowout quarter was not a one off.

 

Listening to the cc this am EH stated that 40% of their loan apps now originate online.  Considering online just started this past spring that is a stunning number.  However most of those online originations are turned over to the local bricks and mortar location, but it reduces the cost of the app considerably.

 

They also expanded on their just announced revenue guidance, admitting they are likely to come in at the top of the 10-12% official range.  As for three year guidance they also had to admit that they will reach their goal of a $250mm loan book earlier in 2016 than by year end.  All good news.  They also discussed in principle, the possibility of acquiring real estate from another loan operation.  Cash store would obviously come to mind.  Analysts on the call were BMO, RJ, Beacon and Paradigm.  There is one other house that follows them, but the name escapes me right now.

 

I'm increasing my 2016 eps estimate to $3.80 conservatively, from $3.60, and putting a 15x multiple on it, upgrading the target to CAD57 by Q1 of 2016.

 

Here’s the PR.

 

http://web.tmxmoney.com/article.php?newsid=66203515&qm_symbol=EH

[Guest 50centdollars]

Record Revenues and Net Income Achieved in Q1 Earnings Per Share Increased by

42%

 

MISSISSAUGA, ONTARIO--(Marketwired - May 7, 2014) -  easyhome Ltd. (TSX:EH)

("easyhome" or the "Company"), the Canadian leader in providing goods and

financial services to the cash and credit constrained consumer, today announced

its results for the first quarter ended March 31, 2014.

 

Revenue for the first quarter of 2014 increased to $60.3 million, an increase of

15.2% from $52.4 million in the first quarter of 2013. The growth was driven

primarily by the expansion of easyfinancial and the related growth of its

consumer loans receivable portfolio. Total same store sales growth in the

quarter was 18.3%. Operating income for the quarter was $8.0 million, up $2.9

million or 57% compared to the first quarter of 2013. Net income for the quarter

was $4.6 million, an increase of 59% compared with $2.9 million reported in the

first quarter of 2013. Diluted earnings per share for the quarter, increased by

42% to $0.34 compared to $0.24 for the first quarter of 2013.

 

"Our results for the first quarter continue the trend of increasing revenues and

growing net income," said David Ingram, easyhome's President and Chief Executive

Officer. "Both easyhome Leasing and easyfinancial reported improved operating

income. As a result, our adjusted operating income increased by 57%."

 

During the first quarter of 2014, the consumer loans receivable portfolio

experienced growth of $12.8 million compared with growth of $4.0 million in the

first quarter of 2013. The gross consumer loans receivable as at March 31, 2014

was $123.5 million compared with $74.7 million as at March 31, 2013, growing 65%

over the preceding 12 months.

 

Other highlights for the first quarter of 2014 include:

 

easyfinancial Services

 

 

 

* Revenue for easyfinancial increased by 69% for the first quarter of 2014

compared to the first quarter of 2013.

           

* Operating margin of 35.8% for the first quarter of 2014 was up from 28.0%

reported for the same period in 2013. Strong growth in the quarter coupled with

improvements in consumer loan losses positively impacted margins.

           

* During the quarter, easyfinancial opened 9 new stand-alone locations and one

new kiosk. The Company plans to continue to open new locations and increase its

marketing investment to support growth.

 

easyhome Leasing

 

 

 

* Although revenue was generally unchanged compared to the first quarter of

2013, it was generated by a smaller and more efficient store network resulting

in improved operating income.

           

* easyhome Leasing achieved same store sales growth of 3.5% for the first

quarter of 2014.

           

* The operating margin of easyhome Leasing for the first quarter of 2014 was

18.3%, up from 16.4% reported in the first quarter of 2013.

 

Overall

 

 

 

* Return on equity improved from 11.0% in the first quarter of 2013 to 13.4% in

the current quarter.

           

* Corporate costs were impacted by a $1.6 million increase in incentive

compensation plan expenses.

           

* Since the start of 2014, the Company has made progress on its strategic

imperatives including establishing easymortages, engaging its first merchant

partners in its indirect lending platform and continuing the development of its

e-commerce platforms and credit adjudication strategies.

 

Outlook

 

David Ingram commented, "We are confident that our growth plans for

easyfinancial, including our omni-channel strategy for the distribution of new

loans, will enable us to achieve our loan book target of $160 - $170 million by

the end of 2014. The new store schedule is on track for at least 35 locations

this year and we have engaged our first merchant partners in our in-direct

lending platform. This continued growth will enable easyfinancial to achieve its

goal of becoming Canada's largest provider of consumer loans as an alternative

to traditional banks and payday lenders."

 

Mr. Ingram continued, "Our leasing business also continues to show solid

consumer demand and we are on track for continued strong results in the ensuing

quarters. We remain committed to our strategic plan as previously outlined. The

Company will focus on evolving our delivery channels to better meet the needs of

our customers, expanding the size and scope of easyfinancial and executing with

efficiency and effectiveness."

 

The Board of Directors has approved a quarterly dividend payment of $0.085 per

share payable on July 11, 2014 to the holders of common shares of record as at

the close of business on June 27, 2014.

 

[bz1516]

50cent you beat me to it.  I'm excited about this quarter as they have now put together three really strong quarters in a row with operating income up about 50% in each one yoy.  I'm hoping this would cause a multiple expansion.  Up 42% fd should be worth a lot more than 12x-13x eps, now over 3 consecutiuve quarters.

[bz1516]

http://web.tmxmoney.com/article.php?newsid=67581445&qm_symbol=EH

 

This could be a big deal too.  Now using their loan platform to partner with other retailers.  Seems like they are moving more towards being a finance company, to the point of aiding other retailers.  Seems like t5heir own retail will become much less important from here on.

[bz1516]

Market Call analyst interview after latest earnings report:

 

Market Call:

 

For video, market analysis and more click here

 

James Telfser, Partner & Portfolio Manager at Aventine Management Group

 

TOP PICKS:

 

easyhome (EH TSX)

Last purchased: May 9, 2014 at $18.84

easyhome is an undervalued and catalyst-rich story that I feel represents a great opportunity for investors to participate in an under followed business transformation. Over the past five years, easyhome has transformed from a home furniture and electronics leasing company into a financial services company that provides higher interest consumer loans to those facing temporary or structural credit constraints through its easyfinancial division. By positioning themselves between payday loan providers, who have struggled under increased government pressure, and traditional lenders, they have been able to build relationships and brand scalability within the Canadian marketplace that is now paying hefty dividends. easyhome is trading at 12 times 2014 earnings-per-share with a 1.8% yield and a nice runway for growth.

[beerbaron]

Just got a 1000$ check from the lawyers that did a class action lawsuit in relation to the employee fraud a few years ago. I always tough those frivolous lawsuits were useless but now that I'm a 1000$ richer the lawyers provided a solid argument :)

 

BeerBaron

[bz1516]

BRIEF-Easyhome announces new $200 million credit facility and increases loan book and sales growth targets

 

    July 28 (Reuters) - easyhome Ltd <EH.TO>:

* Announces new $200 million credit facility and increases loan book and sales

  growth targets

* Expect to achieve the metrics set for total loan book reaching $250 million a

  year earlier than anticipated - by the end of 2015

* Says now anticipates that the loan book will reach $180 - $190 million by the

  end of 2014

* Also now anticipates that the previous target of a $250 million loan book by

  the end of 2016 will be achieved at or before the end of 2015

* Says now targeting the loan book to grow to between $320 and $350 million by

  the end of 2016

* Says company has also revised its revenue growth targets for 2014 to 14% to

  16%

* New credit facility replaces current debt facilities,providing $115 million

  additional capital for growth of easyhome's consumer finance business

* New credit facility, on October 4, 2018, is comprised of a $180 million term

  loan and a $20 million revolving operating facility

* Expect to achieve the metrics we set for our total loan book reaching $250 million a year earlier than anticipated - by the end of 2015

[Guest 50centdollars]

easyhome Ltd. Reports Results for the Second Quarter Ended June 30, 2014

 

Record Revenues +18%, Net Income Growth +46%

 

Earnings Per Share Increased by 27%

 

MISSISSAUGA, ONTARIO--(Marketwired - Jul 30, 2014) -  easyhome Ltd. (TSX:EH)

("easyhome" or the "Company"), the Canadian leader in providing goods and

financial services to the cash and credit constrained consumer, today announced

its results for the second quarter ended June 30, 2014.

 

Revenue for the second quarter of 2014 increased to $63.2 million, an increase

of 17.6% from $53.8 million in the second quarter of 2013. The growth was driven

primarily by the expansion of easyfinancial and the related growth of its

consumer loans receivable portfolio. Total same store sales growth in the

quarter was 19.7%. Operating income for the quarter was $7.7 million, up $2.2

million or 41% compared to the second quarter of 2013. Net income for the

quarter was $4.5 million, an increase of 46% compared with $3.1 million reported

in the second quarter of 2013. Diluted earnings per share for the quarter,

increased by 27% to $0.33 compared to $0.26 for the second quarter of 2013.

 

"easyhome delivered record revenues and its best second quarter financial

performance in the Company's history," said David Ingram, easyhome's President

and Chief Executive Officer. "easyhome Leasing continued to generate solid

earnings and cash flows while easyfinancial grew revenues and operating earnings

by expanding its consumer loans receivable portfolio. As a result, our operating

income increased by 41%."

 

During the second quarter of 2014, the consumer loans receivable portfolio

experienced record growth of $21.9 million compared with growth of $9.3 million

in the second quarter of 2013. The gross consumer loans receivable as at June

30, 2014 was $145.4 million compared with $83.9 million as at June 30, 2013,

growing 73% over the preceding 12 months.

 

Additionally, and as previously announced, the Company replaced its existing

credit facilities with a new $200 million credit facility subsequent to the end

of the quarter. The additional financing will support the expected growth of

easyfinancial until the end of 2015 without the need for additional equity

financing while reducing its cost of borrowing.

 

Other highlights for the second quarter of 2014 include:

 

easyfinancialServices

 

 

 

* Revenue for easyfinancial increased by 75% for the second quarter of 2014

compared to the second quarter of 2013.

           

* Operating margin of 30.8% for the second quarter of 2014 was up from 27.9%

reported for the same period in 2013. Strong growth in the quarter positively

impacted margins.

           

* During the quarter, easyfinancial opened 11 new stand-alone locations.

 

easyhomeLeasing

 

 

 

* Although revenue was reduced slightly compared to the second quarter of 2013,

it was generated by a smaller and more efficient store network resulting in an

operating margin of 16.3%.

           

* easyhome Leasing achieved same store sales growth of 2.7% for the second

quarter of 2014.

 

Overall

 

 

 

* Return on equity improved from 11.5% in the second quarter of 2013 to 12.8% in

the current quarter.

           

* Corporate costs were impacted by an increase in incentive compensation plan

expenses, primarily driven by the appreciation in the Company's share price. If

the impact of the increase in incentive compensation plan expenses were

excluded, earnings per share for the quarter would have increased a further

$0.06 when compared to the second quarter of 2013.

 

Six Months Results

 

For the first half of the year, easyhome recorded revenues of $123.6 million, up

16.4% compared with $106.2 million in the first half of 2013. Operating income

for the period was $15.6 million compared with $10.5 million in the first six

months of 2013, an increase of 49% while net income increased by $3.1 million or

52%. Earnings per share increased from $0.50 to $0.66 cents, an increase of

$0.16 or 32%.

 

Outlook

 

In addition to securing the additional capital, the Company is also moving

forward with the launch of a new master brand that will support all of its

business units. On September 15, it will be launched nationwide on television

and on-line. It will also allow easyhome to maximize its advertising dollars by

promoting all of its easy brands under one umbrella with a common message. The

launch will present an investment spend of $0.06 to $0.08 per share during the

third quarter of 2014, after which advertising expenditures will return to a

normal run rate versus revenue.

 

"The master brand strategy has been carefully planned over the last nine

months," said Mr. Ingram. "The shift in marketing spend from flyer based

activity to digital and television content represents a major change in our

spend allocation to promote our omni-channel strategy. In addition, it

complements our commitment to be Canada's largest provider of consumer loans as

an alternative to traditional banks and payday lenders."

 

As a result of the access to additional capital, the expected benefit of the

master brand launch and the strong growth of the easyfinancial consumer loans

receivable portfolio over the past several quarters, the Company has revised its

loan book and sales growth targets. The Company now anticipates that the loan

book will reach $180 - $190 million by the end of 2014 and that the previous

target of a $250 million loan book by the end of 2016 will be achieved at or

before the end of 2015. The Company now anticipates that the loan book will grow

to between $320 and $350 million by the end of 2016. Consequently, the Company

has also revised its revenue growth targets for 2014 to 14% to 16% (from 10% to

12%).

 

The Board of Directors has approved a quarterly dividend payment of $0.085 per

share payable on October 10, 2014 to the holders of common shares of record as

at the close of business on September 26, 2014.