Skip to main content

The Globe and Mail

Easyhome: clear conscience and poised for growth

Fabrice Taylor, CFA, publishes the President's Club investment letter. His letter and The Globe and Mail have a distribution agreement. You can get a free copy here.

Talk to investors about the merits of Easyhome stock and you're likely to get a few answers that go something like "nice business, good management, but I wouldn't invest in it on ethical grounds."

It's not the leasing business that's problematic: Easyhome rents furniture, appliances and electronics to people who can't afford to buy the goods or get credit to do so.

Story continues below advertisement

It's the lending side of the business that consciences struggle with – the company also lends money to its customers, and, understandably, charges them a lot more interest than people of means would pay at the local bank.

The moral debate over Easyhome stock reflects an odd, very Canadian, attitude. But more on that objection in a minute. First, consider the business merits.

When Easyhome leases a piece of furniture, it first buys it wholesale and then rents it out and sells it once it's depreciated. Typically the company will earn as much as four times the cost of the item in revenue. In other words, it earns fat gross margins from leasing.

Lending, which is a relatively new endeavour, is also very profitable, but not because the company is gouging consumers, as some will assume. It's because this is a very scalable business, meaning the costs are largely fixed, so as revenue grows, which it's doing, earnings grow even faster. Lending revenue rose 44 per cent in the latest quarter while pretax income from lending more than doubled. That's the beautiful confluence of scale and growth.

The lending business is poised to grow rapidly. Demand is very big and growing because of the rapid growth of that segment of the population called the working poor – "an unfortunate growth industry," as one analyst eloquently puts it.

Easyhome has secured additional funding, which should allow it to grow the lending portfolio nicely in the coming years.

Of course, this is not your average bank's loan portfolio. Making unsecured loans to people of little or no credit quality is a relatively risky business. For that reason, the funds that Easyhome borrows to lend to its customers are pricey.

Story continues below advertisement

That, in addition to the relatively high loan losses the loan book incurs, explains why the company has to charge about 47 per cent on its loans. But it seems to have found the right balance of risk and reward, as the loan portfolio survived the financial crisis essentially unscathed.

The leasing business, meanwhile, is on the mend. It once earned about 80 cents a share, which this year will be reduced to about half that. However, the company has undertaken a restructuring – mostly closing poorly performing stores, getting rid of management and reinstilling a sales culture – that's already bearing fruit, with income smartly on the rise. Total earnings per share were up 27 per cent in the latest quarter – a personal delight since I'm a shareholder.

This profitability funds a nice dividend that equates to a yield of 4 per cent. The stock is quoted at a Scrooge-like seven times next year's earnings, despite double-digit growth.

Looks like a Christmas gift. Except 'tis the season of goodwill and, for some, there's that nagging morality question.

Here's the answer: Easyhome's loan customers have no alternative. The banks won't lend to them, nor the credit unions, nor the credit cards. A good percentage of the loans go toward car repairs (not drinking beer as some would believe). Without these loans these people can't get to work or pick up their kids from school. The rates are high, yes, but only because they have to be, just as life insurance rates for smokers are high. Furthermore, the loan sizes are relatively small.

Curiously, as Easyhome CEO David Ingram told me when I brought this up, customers aren't complaining (quite the contrary).

Story continues below advertisement

More curiously, no one ever attacks the morality of mutual fund companies, even though they demonstrably cost Canadian hundreds of millions of dollars every year as a result of the high fees they charge compared to index funds or ETFs.

I don't think there's an ethical chapter in this story. All I see is a very attractive risk-reward proposal.


At what cost credit?

It's the lifeblood of our economy, yet the credit gap is wide and growing.

Personal line of credit

about 5%



Canadian Tire credit card


The Bay credit card


The Brick credit card

30% + (excl. admin. fees)



Payday loans




Source: Company reports and Beacon Securities Ltd.

Report an error
About the Author
Investment Columnist

Fabrice Taylor, CFA, publishes the President’s Club investment letter, for which he and The Globe and Mail have a distribution agreement. More


The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨