ECN Capital Corp. (TSX:ECN) offers would-be shareholders growth at a reasonable price
Capital Ideas Media | July 20, 2021 | SmallCapPower: Finance is the lifeblood of the business world. And helping lenders make better business decisions (and presumable more profits) are companies such as ECN Capital Corp. (TSX:ECN).
(Originally published on Capital Ideas Media on June 1, 2021)
The Canadian company has more than 100 U.S. financial institutions as clients, including banks and credit unions, providing services such as originating, managing, and advising on consumer loan and credit card portfolios.
ECN Capital has three core operating segments: Service Finance, which provides home improvement loan options to consumers; Triad Financial Services, which provides consumer loans for home purchases through a network of over 3,000 manufactured housing dealers and; The Kessler Group, which manages and advises on consumer credit card portfolios through more than 6,000 credit card partnerships.
COVID-19 related restrictions have led to more consumer spending on home buying and home improvements, which is providing a big boost to ECN’s business.
During its most-recently reported quarter (Q1 2021), the Company’s HVAC loans business increased 42% year over year, while consumer borrowing for windows and doors surged 64%. Its manufactured homes originations, meanwhile, climbed 37% year over year.
ECN Capital has also seen a steady improvement in its Return on Equity, increasing from 9% in 2019 to an expected more than 20% by 2022.
For Fiscal Year 2021, ECN management is forecasting earnings per share of between US$0.46 and $0.51, up from $0.31 in 2020, and $0.55 to $0.64 in 2022.
Analysts such as Stephen Boland at Raymond James, though, think these estimates could be too conservative as ECN Capital’s Service Finance segment launched a partnership in April with Sam’s Club, a warehousing bulk shopping depot own by Walmart, to offer home improvement services nationally such as HVAC, windows and doors, and roofing.
It also recently announced an exclusive partnership with Daltile, the world’s largest flooring company. None of these recent partnerships are included in management’s guidance.
As a bonus, ECN pays a modest dividend (currently yielding 1.4%) that the Company boosted by 20% in February. It also bought back 1.1 million of its shares in the first quarter of this year.
Many fund managers talk about wanting to buy growth at a reasonable price (GARP), and ECN Capital seems to fit that bill as its stock is currently trading at a price-to-earnings multiple of 11.8 times the 2022 consensus estimate.
And even though ECN stock is up about 30% year to date, the analyst consensus suggests another 25% upside for its shares over the next 12 months.
CIBC analyst Nik Priebe wrote recently, “We continue to like ECN for its attractive growth profile and diversified, resilient business model.”
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