Integration Of QuidMarket Will Accelerate International Expansion

Key Takeaways

• Anticipated growth from high-quality credit consumers and QuidMarket integration could boost revenue and international profitability.
  
• Strategic partnerships and geographic expansion are expected to enhance earnings growth and operational efficiency.
  
• Dependence on external debt facilities and regulatory complexity could challenge Propel's revenue growth and affect net margins and financial stability.

Catalysts

Operates as a financial technology company.

• Propel Holdings anticipates an increased demand from high-quality credit consumers due to traditional banks tightening their underwriting criteria, which could lead to revenue growth and improved net margins.
  
• The integration and expected growth of QuidMarket in the UK market are projected to accelerate, potentially increasing Propel's international revenue and profitability.
  
• Launching new partnerships in the Lending-as-a-Service program is expected to drive revenue growth and provide higher margins due to its low provision for loan losses.
  
• Optimizing and refining AR models in the Canadian market to operate under the new sub-35% APR regulation could lead to efficiency in revenue collection and margin enhancement.
  
• Expansion into new geographies and markets, alongside potential reductions in cost of debt from refinancing, is anticipated to lower operational costs and enhance earnings growth.

Propel Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Propel Holdings's revenue will grow by 25.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.3% today to 18.1% in 3 years time.
• Analysts expect earnings to reach $162.3 million (and earnings per share of $3.92) by about March 2028, up from $46.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, down from 13.6x today. This future PE is lower than the current PE for the CA Consumer Finance industry at 25.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.18%, as per the Simply Wall St company report.

Propel Holdings Future Earnings Per Share Growth

Risks

• The integration of QuidMarket involves challenges in terms of manual processes that impede growth, potentially affecting future revenue generation from the U.K. market.
  
• The company experiences a long sales cycle for the Lending-as-a-Service program, affecting the timing and predictability of revenue and potentially leading to delays in profitability contribution from this segment.
  
• Economic uncertainty and tightening of credit by banks in North America could increase defaults if not adequately mitigated by Propel's underwriting, impacting net margins.
  
• The decline in the U.K. regulator's overcorrection has left a gap that Propel aims to fill, but the regulatory landscape can bring unforeseen changes that could affect earnings.
  
• The ongoing reliance on external debt facilities and potential interest rate changes could influence Propel's cost of capital, impacting net margins and financial health.

Valuation

• The analysts have a consensus price target of CA$41.888 for Propel Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$44.85, and the most bearish reporting a price target of just CA$34.88.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $895.8 million, earnings will come to $162.3 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of CA$23.15, the analyst price target of CA$41.89 is 44.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.