Enova International, Inc. is a technology and analytics company, which engages in the provision of online financial services and access to credit power to non-prime consumers and small business. It offers financing products such as short-term loans, line of credit accounts, installment loans and receivables purchase agreements.
The company was founded in 2003 and is headquartered in Chicago, IL
Enova has multiple products driving growth across multiple countries:
Recent comments on Brazil:
Having gained additional confidence in both our analytics and operations over the last couple of quarters, we are now accelerating our growth in Brazil. Given the strong demand we have been seeing there, we anticipate that origination levels to grow fairly quickly.
Recent comments on UK:
… we saw very strong new customer originations in Q1, as a competitive shakeout, following the regulatory changes is not yet over. As a result, even though we are the leading subprime lender in the U.K. by market share, we believe that over time, we can continue to generate meaningful growth in the U.K. and increase profitability there
The US government has flagged in the introduction of CFPB Small Dollar Lending Rule. The company estimates 60-65% of total revenue could be impacted, reducing revenue in those products by 30-40% from 2016 levels. We calculate that impact to be at worst a 24% decline in revenue. Similar changes were enacted in the UK which had a material impact on revenue and earnings as seen in 2015.
While the company hasn’t updated that forecast since 2016, they seem increasingly confident the impact will be materially less or the changes may not come in at all:
In fact, the earliest we are hearing is mid-2019. And there are many reasons to believe, it could be later, if at all.
At the state level, we are seeing more activity than we have over the last couple of years. There appears to be a bit of a backlash at the Trump election, with some state legislatures considering new small dollar legislation, under the premise that it’s less likely there will be rule making from the CFPB. The most recent example of this is in Maryland, where bill recently passed out of the legislature and posing a 33% rate cap on line of credit products. This bill hasn’t been signed by the governor yet, but we think it’s likely that will become law. If it does, we will be forced to stop our line of credit product in Maryland. We don’t yet have a precise estimate of the impact, but don’t see any in Q2. We will provide a further update next quarter, if the bill becomes law.
At this time, we don’t see any other states at high risk, although we are monitoring developments closely.
On the positive side, there are also a few states ruling the other way and debating new legislation to open up access to small dollar lending in those states. The closest is Oklahoma, where a bill just passed today out of their legislature, and could become effective later this year.
As days go on we feel even better that the rules will be more favorable to us than the proposed rules that we’ve previously seen.
Any significant volatility in the British pound from current levels can also impact our results. So Brexit currency fluxation is a risk to earnings.
2016 GAAP EPS was $1.03, while Non-GAAP EPS was $1.12.
The company is forecasting upside of 40% on earnings (1.44 vs 1.03) which we expect they will meet. Given the regulatory risk, we will see a PE of 25 appropriate, with strong upside if no regulatory changes occur.
On that basis, Non-GAAP earnings would be $1.56 putting the company on a forward PE of 10.5
In regards to gross margin, the company:
We expect that consolidated gross profit margin will remain in the range of 50% to 60% and will be influenced by the pace of growth and originations, the mix of new versus returning customers and originations, and the mix of loans and financings in the portfolio.
We expect our international gross profit margin to range from 60% to 70%, and will be driven by the pace of growth in both the U.K. and Brazil, as well as the mix of new and returning customers.
The company is forecasting:
Note: Earnings is highly leveraged to revenue and gross margin. EPS grows faster as revenue grows, but falls sharply too as seen when it fell due to UK regulatory changes. As seen in 2014, when the revenue picks up, earnings can jump quickly.