Propel Holdings (PRL.TO)

Peers have seen delinquency rates rising, but PRL's done good job managing that using AI. Continues to drive numbers higher, yet stock's challenged. Valuation got ahead of itself, but now it makes more sense. Earnings should continue to grow. He's watching it.

Q4 was pretty bad. Quality of loan book is the issue, with reserves going up and then being written off. Minefield. Wouldn't add more until you see loan-loss provisions stabilize. Canada might have some economic risk.

Digital alternative to payday lenders. Disruptive fintech, AI-enabled to assess credit. In US, UK, and Canada. Discounted valuation of ~6.5x PE, cheap on surface.

Here's the rub:  credit losses are very high (50% of the loan book, compared to banks' average of 0.7-1% or so). Analysts like the name, growing profitably. Very limited institutional participation. Low barriers to AI entry. He's wary, but you can keep it on your radar. Yield is ~4%. 

While the banks are trading at highs, Propel and Goeasy are substantially down over credit risk concerns, but their valuations are very attractive now. Be leery about it. 

One of the fastest-growing fintech names on the TSX. Online lending to consumers who can't easily get credit from the big banks. Impressive growth numbers. Works great in a good economy, but not so much when the economy turns (and that's what we're starting to see). Small, relatively less liquid stock.

Not set-it-and-forget-it by any means. Good growth story, if you're comfortable with the risk profile. Must watch credit quality every single quarter.

Market's focused on loan quality. Last quarter, EPS momentum slowed. Loan balances hit new highs, but full-year guidance reduced. Technically, has made a double top. Trump threatening to reduce credit card interest rates.

Current level of ~7x PE for 29% growth is buyable. High torque stock that will go up a lot when it works. Small cap, whippy. Don't buy in TFSA or registered account. 

His firm has a small position. Likes its growth trajectory and evolution of business model. Growth in earnings and revenue. Great signal that it again upped dividend, which high-growth companies typically don't do unless quite certain of the future. 

Reasonably inexpensive here. May have been hit by tax-loss selling. Very well run, well capitalized. Possible worries about credit cycle.

Exceptionally high ROE. Originations (new loans) slowed last August/September, but then they increased. (These are short-duration loans, and they always need to grow the loan book.) Business has been growing almost 40% a year. Expanding in UK, US, and looking at other countries. Presence in Canada is not too big.

Management are smart and capable individuals, and their own capital is at stake. Extremely well run, high quality. If you're OK with volatility, buy here and you should do well over time. Keep your portfolio position small.

Caveat: US government is imposing rules left and right. Doesn't think proposed interest rate cap of 10% will be applied to non-prime lenders, but it's unpredictable. If a cap were applied, would be devastating. This is still one of his best ideas in the space, given quality of management and the fact that UK business is growing fast.

Fintechs intrigue him. Their loss loan provisions are high, but PRL turns their loans so often that they make money. Momentum has come out of this stock. Wants to see more clarity before entering this. Likes what they do in fintech.

The space is definitely creaking, like the pipe in your house that doesn't sound good and might burst at some point (he had a plumbing issue this morning ;)  His firm is far away from this space. 

Have to be very careful about sub-prime credit. It won't be exactly like 2007-2008, but we are in some type of credit cycle. Unlikely that interest rate cuts will save us this time, because they can't be big enough. With inflation being sticky, rates won't be able to go low enough.

#1 would probably be Telus. BCE is also in there. Names like AC, MFI, PRL, GSY, WFG, and TFII. All of these stocks are cheaper than they ought to be. All things being equal, those names should be higher in January than they are now.

Short-seller report predicted a reckoning for sub-prime lenders. PRL cleaned up its book a bit, and focused a bit more on quality as opposed to growth. Market didn't like that. Thinly traded stock, so a bit of bad news can cause a big fall.

He's still modelling 35% growth, trading at 7x PE for 2027. Really good value. Just a matter of time. He did sell for the tax-loss, to counterbalance all the big wins in the portfolio. He's going to wait the 30 days and then buy back in, or choose GSY instead. Believe in the name.

They just partnered with a California bank, but will do their own banking. Doesn't know the full details. Strong growth at 30-40% yearly, and trades at 6x forward PE. Expects this to rebound nicely.

Overall, it wasn't the best quarter from PRL but they are being conservative and thinking longer-term which is what you probably want to see in this type of business.  The conference call highlighted an uptick in delinquencies in the US which caused PRL to get a bit more conservative on their underwriting. This appears to be due to factors such as student loan repayments restarting, government shutdown and potentially just a bit higher inflation eating into consumer income. Management sounds like they are simply being more proactive, which is a good thing, and once when they have a better handle on the economic backdrop, they will look to increase volumes again.
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Overall, it wasn't the best quarter from PRL but they are being conservative and thinking longer-term which is what you probably want to see in this type of business.  The conference call highlighted an uptick in delinquencies in the US which caused PRL to get a bit more conservative on their underwriting. This appears to be due to factors such as student loan repayments restarting, government shutdown and potentially just a bit higher inflation eating into consumer income. Management sounds like they are simply being more proactive, which is a good thing, and once when they have a better handle on the economic backdrop, they will look to increase volumes again.
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