Goeasy Shares Down Again After Canadian Budget Plan

By Robb M. Stewart

Goeasy Ltd.'s shares were again under pressure Wednesday after the Canadian government's 2023 budget confirmed plans to lower the maximum allowable rate of interest lenders can charge.

In morning trading, the shares were 6.7% lower at 91.72 Canadian dollars (US$67.46), building on Tuesday's 9.4% drop following media reports that the proposed change to Canada's criminal code was expected to be included in the budget plan. The stock is now down 14% so far this year, and 35% lower over the last 12 months.

The governing Liberal party said it plans to cut the maximum annual percentage rate to 35% from 47%, and said it intends a fresh round of consultations to consider reducing the top rate further in an effort to crack down on predatory lending. In the province of Quebec, the maximum interest rate for consumers already is 35%.

Goeasy said it expects it will continue to produce an annual increase in adjusted per-share earnings going forward, but the change may hit the operations of other consumer lenders and reduce competition.

The company said it has worked to reduce the weighted average annual interest rate it charges customers, and only about 36% of its consumer loan portfolio carries a rate above the planned 35% threshold at a weighted average annual rate on those loans of 42.5%.

Phil Hardie, an analyst at Scotia Capital, said the budget proposal is an unexpected negative development for Goeasy but should ultimately be manageable if the company accelerates its strategy of diversifying its product offerings and moving up the credit spectrum. While earnings growth is expected to continue, it is now likely to be at a slower pace, he said.

Scotia cut its target on the shares to C$130 from C$170.

Raymond James analyst Stephen Boland said the government's move is negative for Goeasy's business model but may not be as material as many expect. His target on the shares was cut to C$136 from C$195, but said weakness in the stock would be a buying opportunity.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

March 29, 2023 11:16 ET (15:16 GMT)

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