Fintech stock Propel Holdings is a buy, says Eight Capital
Investment bankers Eight Capital launched coverage on the fintech company on Wednesday Propel Holdings (Propel Holdings Share Price, Charts, News, Analysts, Finance TSX:PRL), with analyst Adhir Kadve saying there is strong and profitable growth ahead and a potentially important re-rating catalyst.
Toronto-based Propel has an online lending platform that uses artificial intelligence and machine learning to facilitate the origination of loans and lines of credit. The company focuses on underserved non-prime consumers, and while historically a US-only company (facilitating access to credit in 27 states through its Credit Fresh and MoneyKey brands), last November Propel announced its entry into the Canadian market through a new brand. Fora, an open line of credit product currently available in Ontario, Alberta and BC.
Kadve said he likes Propel’s plan to reduce the credit risk profile of its loan book by expanding its addressable market to include customers with generally lower credit risk and increasing lending to existing customers and upgrading many of those customers to lower interest products.
Kadve said: “Ultimately, as these initiatives work their way through the loan book (all measures have a lagged effect of between 3-6 months), we believe that write-offs and provisions should develop more favorably, thereby leading to profitable growth for Propeller.”
As for the unsecured personal loan market, Kadve said fintechs, through the ongoing digitization of loan orders, continue to increase their share of the market, giving Propel, which has a penetration of less than one percent of that market, a “strong tailwind and a long runway for growth.”
On top of that, Kadve is a potentially significant catalyst in Propel’s signing in October of a five-year deal with Pathward Financial, a large fintech-focused bank. The deal will see Propel’s technology infrastructure and AI decision engine used to advance loans to clients in Pathward’s partner network.
“Through the partnership, Propel will not take any balance sheet risk, but rather earn a high margin and recurring monthly fee on each active user and a guarantee fee on originals. In our view, the absence of balance sheet risk and the recurring nature of the fees will allow investors to treat this segment on in the same way as SaaS-based revenue as opposed to lending-based revenue, hence the re-rating potential,” Kadve wrote. .
As for Propel’s financials, Kadve estimates that revenue will go from $226.9 million in 2022 to $322.3 million in 2023 and to $423.4 million in 2024. Adjusted EBITDA is projected to go from $40.8 million in 2022 to $826.23 million in $423.2 million in $4023 million. (All figures in US dollars unless otherwise noted.)
On valuation, Kadve said Propel is currently trading at 3.4x 2024 Price/Earnings, which represents a significant discount to its peer non-prime lending group of 5.6x. Kadve launched on Propel with a “Buy” rating and C$15.00 target, based on a 7.0x 2024 P/E multiple and implying a one-year return at the time of publication of 115 percent.
