World Acceptance To Gain From Lower Credit Provisions In FY24, Analyst Raises Estimates

BMO Capital Markets analyst James Fotheringham reiterated an Underperform rating on World Acceptance Corporation WRLD, raising the price target to $59 from $47.

WRLD reported its first quarter revenues of $139.32 million, down 11.8% year over year. Revenues beat the consensus of $135.81 million. EPS of $1.62 beat the consensus of $0.63. 

The analyst notes that WRLD reported improving credit, rising yields, and fast growth in new loan originations; however, the analyst predicts these trends not to sustain.

The analyst adds that interest and insurance yields increased +140 bps QoQ and +130 bps YoY due to shifting the portfolio mix towards smaller loans.

WRLD's small loan portfolio grew in FY1Q24 while its large loan book declined in absolute terms.

Fotheringham assumes the company's credit costs to rise as it consciously increases approval rates to new customers and shifts the portfolio to smaller loans.

WRLD's quarterly NCO rate averaged 23.6% over the past four quarters (high by historical standards) but fell to 16.9% in FY1Q24. 

The analyst forecasts NCO rates in the high teens for the foreseeable future. 

The analyst raised WRLD core EPS estimates by +15% in FY2024E (to $6.69 from $5.81) and +20% in FY2025E (to $7.90 from $6.57) due to higher than previously modeled revenues and lower expected credit provisions.

Price Action: WRLD shares are trading higher by 0.05% to $150.94 on the last check Monday.