I’ve been looking at the carnage left behind in Goeasy (TSX: GSY) and holy moly:
… announced today that it expects to incur an incremental charge off in Q4 2025 of approximately $178M against gross consumer loans receivable of $5.5B as at December 31, 2025, and a related write down of approximately $55M for loan interest and fees.
… $178+$55 is roughly the net interest income the company makes in a quarter. Oops!
The Company also expects a net increase in allowance for credit losses on gross consumer loans receivable in the quarter of approximately $86M compared to the amount reported as at September 30, 2025.
… this is quite a material increase given the typical top line of about $328M for Q3-2025. A +$86 allowance raise is a 26% increase in expected defaults – ouch!
The historical reporting practice resulted in certain customer payments being recorded as received while they were in fact in the process of being settled at month end, some of which were ultimately not collected, and also impacted the Company’s reported delinquencies.
… talk about counting your chickens before the eggs hatch!
Not surprisingly, the company’s stock took a huge bath today – down 56%.
Looking at the corporation in general, their reported Q3-2025 has (rounding to the nearest $100M) about $500M cash, $5.2B in loans receivable and on the liabilities side, capitalized with $4.7B in debt.
It’s pretty evident they are clearing out the books with this purge – the question remains whether this company actually ended up making any money or not on their core business. Doing a very rough projection with the above numbers suggests after fixed expenses, they did not. The company managed to get to $210/share in the middle of 2025 clearly with false profitability.
Are they a value at $50? I’ve always shied away from these types of financing companies since you never know when this sort of event will occur as it is difficult to ascertain the credit quality within the loan portfolio. On one hand, you have the Element Fleet Managements of the planet, and then on the other hand you have the Crown Capital and Accord Financials of the planet that are in much more questionable shape. I am not good at picking winners in this space.
This also might be a reflection of what’s going on in the downward-sloping part of the so-called “K-shape economy”.
Early tax loss season this year 🙂
EY should face tough questions from investors. They signed a clean opinion in 2024 after all.
One cannot unsee a balance sheet hole worth 10% of your equity.
I think it goes back to basic investment philosophy – why were people paying such a crazy multiple on such a company in the first place. It was forever trading at over 2x PB and at its peak like 4x PB. Why would one pays this kind of prices for such a loan book in the first place?
In general though subprime lending is not a space you want to be in a recession.
Extrapolating a bit from GoEasy since this has to do with loans – if AI story is real and what happens at Block becomes the norm – we will be in a world of hurt and existing economic paradigm is not designed for that. Think about those loans to SaaS that everyone worries about – each white collar worker is really like a mini-SaaS and the mortgage with the bank is the loan to SaaS co.
THE CEO and CFO leaving last year was a big red flag. The OSC should be investigating this firm but I doubt they will do their job.
Some serious insider purchases of common stock would go a long way right about now.
Something makes me think unlike Home Capital Group we’re not going to get Berkshire bailing out these guys!
unfortunately, they usually goes to zero
and that’s what we see reflected in the share price collapse. This might be contained – basically the revenue recognition practice of an acquisition catching up to them. This might be take-all-the-pain-now-and-move-on type of situation. That is certainly how the company is framing it with their six-point plan and big write-downs. It also might not. It might be a cockroach – the first sign of much more.
If the former, current pricing is a brilliant entry point. Essentially, profit for 2026 will be mute or negative, depending on how “mid-teens” the charge-offs become. A return to more sober growth and profitability will follow. If the latter, zero isn’t a stretch.
Q4 results and commentary will be illuminating. I’ve a small bet on containment.
I can respect this bet. Say the write-down is $400 million. Tangible book goes down to about $34/share. If the franchise is legitimately profitable (say half of its misstated profitability), then you’ll have a good value for sure.
But I ask myself – five years ago this company had a $1 billion loan book. Today it is $5 billion. Is the credit quality from 0 to $1 billion the same as $1 billion to $5 billion? Not a chance. Maybe they historically skimmed what they could and then decided to extend and pretend… very tough to say.
My simple math. Give them $12 per share earnings in 2027 with a re-instated but much lower dividend of $2/sh. Give them 10% earnings growth from there with a reasonable investor-discount rate of 11% and they are worth $137/sh at that point. Lots of room to slash any of the assumptions and still get way north of $34/sh.
There’s no way at all $12/share earnings is in the cards in 2027. If so they’d be a seriously strong buy. TTM pre-March 10th disaster announcement is $13.70/share diluted EPS, the announcement is effectively saying very roughly that their chargeoff rates will rise, credit loss provisions will rise, and not including financing interest rate increases that will come as they renegotiate covenants… I think they’d be lucky to get $5 EPS, but my paper napkin has them around $3-4ish which is shockingly similar to what Mr. Market is kind of saying right now with respect to the stock price. They’re going to have to cut the crap out of their $300M pre-amortization/depreciation cost base and probably just focus on improving their loan book instead of inflating that recklessly.
In other words, seems like they’re a typical sub-prime lender!
“In other words, seems like they’re a typical sub-prime lender”
That is the bet. $4/sh earnings in 2027 is a $51/sh valuation, other parameters unchanged.