Q: Are the increasing delinquencies and fraud risks with auto lenders priced into GSY's pullback recently. With Tricolor, Firstbrands and Primalend now having major issues in the auto lending space, and a short report released not long ago which pointed out concerns with their auto lending risk. Its hard to tell if the pullback is mostly broader economy concerns and the auto risk may be another factor that will pull it down as delinquencies are increasing in North America, and if so we likely see more downside. Also does Propel do any auto loans, and if not does it seem like the better buy since its being dragged down with all the lenders? Thx
5i Research Answer:
Propel has no direct auto lending exposure. Goeasy actively lends to the auto sector primarily by providing vehicle financing to non-prime borrowers through partnerships and its LendCare brand. GSY has made no comments on its autoexposure, and recent results did not indicate any credit concerns. This could of course change going forward. But we think a lot of risk is priced in. GSY knows its credit business, and short sellers seem to not understand the sub-prime market is very different in Canada. Canadian banks are ultra ultra conservative, which leaves a larger pool of 'good' customer credits for the other players. We would still prefer GSY due to its size and valuation difference vs PRL.