Enova International — NYSE:ENVA

About Enova International

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

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Enova provide small loans to people on low incomes and small business. Using the proprietary Colossus Analytics Engine, the company uses big data and it’s own large data set of 300m transactions to create and continually refine models assessing loan risks.

The company securatises the loans and makes a profit from the difference between it’s lending rates and the interest it is charged.

Loans are marketed and administered entirely online, keeping marketing and sales costs low. 85% of it’s business is in the US, with a large established marketshare in the UK and a new fast growing business in Brazil.

The company has large growth potential in Brazil and the US as it currently has a 1-2% market share of loan originations. Due to increased competition and regulation othe lenders are increasingly leaving the market or going bust, providing a long-term advantage to Enova and it’s analytics algorithms.

When the company issues a loan to a new customer, it takes on additional risk of default, which impacts on gross profit. As a result, new loan growth tends to hurt profitability in the short-term.

There is a noticable seasonality in the business. In Q1, US customers receive their tax returns and tend to pay down existing loans and less likely to take up new loans. This results in higher gross margins in the first half of the year, but smaller loan volumes. Whereas the second half of the year may have higher loan volumes but smaller gross margins. This mix can cause significant (short-term) variations in earnings.

In 2015, new regulations entered the UK market which caused a significant downturn in the company’s operations. As a result Enova picked up market share from customers that went out of business, but the market contracted by 50%. So the company is now the largest player in a smaller market. This demonstrates the underlying strength of the company’s technology and business model, but also the regulatory risk in play.

The company is expanding to Brazil as a hedge against the regulatory risk, but also expanding out an analytics product (Enova Decisions) that will not be impacted by any regulatory changes.

In Brazil, the company has a first mover advantage. Enova estimates 74 million Brazillians in its target market with a total makret value of $115bn. The company estimates a future EBITDA potential of $100m pa.

Enova’s proprietary Colossus Analytics Engine is a very interesting combination of technology and data accumulated over 10 years. It can simulate a general economic downturn by looking at micro downturns (factory shutting down / statewide recession) to build into modeling and protect risk. This technology underpins the future risk management and expected long-term viability of the company.

The management’s forecasts over the past 6 quarters have all been inline, or if anything, conservative. They demonstrate a clear understanding and control over the company’s growth and earnings levers.

Growth Drivers

Enova has multiple products driving growth across multiple countries:

  • Continued growth in the US
  • Continued growth in the UK
  • Fast growth in Brazil (new market)
  • Growth of Enova Decisions (new analytics-as-a-service technology business)

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.

Valuation Metrics

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:

  • Revenue $810m - $880m
  • GAAP EPS $0.88 - $1.44
  • EBITDA $145m - $175m

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.

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