Upcoming Partnerships With KOHO And QuidMarket Will Drive AI-powered Market Expansion

Key Takeaways

• Propel's partnerships and acquisitions aim to expand market reach and increase revenue through embedded lending and AI technology.
  
• Leveraging AI underwriting and optimizing lending services are expected to boost revenue growth and improve net margins.
  
• Expansion into new markets and acquisitions presents both growth opportunities and risks, with regulatory changes and economic disparities posing potential challenges to profitability.

Catalysts

Operates as a financial technology company.

• Propel's new partnership with KOHO is expected to expand its addressable market in Canada, potentially increasing revenue through embedded lending opportunities with qualified customers.
  
• The acquisition of QuidMarket in the U.K. is anticipated to be immediately accretive to the company’s adjusted EPS, leveraging AI-powered technology and operational expertise to enhance international revenue growth.
  
• Propel is actively exploring additional embedded lending partnerships in both Canada and the U.S., which could lead to increased revenue streams and market penetration opportunities.
  
• The expansion and optimization of the Lending-as-a-Service program, which includes onboarding new purchasers and expanding commitments from existing purchasers, positions Propel for strong revenue and earnings growth in 2025.
  
• Propel's focus on leveraging AI underwriting capabilities and refining loan performance may contribute to improved net margins by reducing provision expenses and net charge-offs.

Propel Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Propel Holdings's revenue will grow by 27.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.4% today to 15.8% in 3 years time.
• Analysts expect earnings to reach $137.4 million (and earnings per share of $3.35) by about February 2028, up from $43.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $152.5 million in earnings, and the most bearish expecting $113.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.5x on those 2028 earnings, down from 23.5x today. This future PE is lower than the current PE for the CA Consumer Finance industry at 31.4x.
• Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.91%, as per the Simply Wall St company report.

Propel Holdings Future Earnings Per Share Growth

Risks

• Propel Holdings' expansion into new markets, while promising, carries execution risks that could impact projected revenue growth and market positioning.
  
• The company's recent acquisition of QuidMarket involves one-time expenses and integration challenges that may affect short-term net margins and profitability.
  
• Changes in the regulatory environment, particularly in Canada, with the reduction in the maximum liable rate of interest, could pressure revenues and earnings, requiring adjustments in business models.
  
• Propel's reliance on AI for underwriting poses a risk if technological issues or assessment failures arise, potentially affecting credit performance and profitability.
  
• Economic disparities between the U.S. and Canada, such as differences in unemployment rates or consumer spending, may lead to uneven performance across markets and affect overall earnings.

Valuation

• The analysts have a consensus price target of CA$45.919 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$52.03, and the most bearish reporting a price target of just CA$42.85.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $871.2 million, earnings will come to $137.4 million, and it would be trading on a PE ratio of 11.5x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of CA$37.44, the analyst price target of CA$45.92 is 18.5% 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.