Can ECN Capital grow more with housing?

ECN Capital is a leading business service provider to North American based banks, credit unions, life insurance companies, pension funds, and investment funds. It also offers advisory and management services to prime credit portfolios.

ECN owns a portfolio of business services providers that operate under a fee-based, asset-light model. The company operates through three market-leading businesses – Service Finance (44% of revenue in the last nine months), Triad Financial Services (26%), and The Kessler Group (30%).

Each of ECN’s operating partners have grown and improved operating margins since its investment. The company’s core portfolio offerings include co-branded credit cards and related financial products, manufactured home loans and home improvement loans.

Investment Data
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Revenue Growth & Market Exposure

ECN Capital serves more than 90 financial institutions ranging from some of the largest US banks and credit unions to community banks and local institutions.

It offers unsecured and secured consumer loan and credit card portfolios. The company has managed and advised credit portfolios worth $32 billion. 

ECN Capital offers secured and unsecured consumer loan and consumer credit card portfolio solutions. It has an enhanced menu of products with new product launches.

Over the years, ECN has established long-term regulatory relationships with financial services regulators as well as strong relationships with the banks, credit unions, insurance companies, investment funds, etc. It will not be easy for newcomers to replicate these significant entry barriers.

Moreover, providing management and advisory services to banks and financial institutions require highly specialized expertise, industry knowledge, and regulatory compliance. ECN serves more than 50% of the top 25 US banks.

ECN’s businesses are leading in the areas they serve. KG is a premier manager, adviser, and structuring partner to credit card issuers, banks, credit unions, and payment networks.

Service Finance originates and manages short-duration unsecured consumer loans for more than 25 partners while Triad Financial Services is the oldest manufactured housing finance company in the U.S. The company is also growing through accretive tuck-in acquisitions.

Though COVID-19 continues to affect ECN’s business, ECN Capital’s home improvement finance and manufactured housing finance platforms are considered “essential businesses” and continued operations.

The company grew its revenues by 11%+ CAGR over the last three years.


ECN sports an annual yield of 1.7% and a high payout ratio. It last raised its dividend by 11% and has grown it at a rate of more than 100%+ CAGR in the last three years.

It also has a share repurchase program in place. ECN has strong credit quality and a sound track record of excellence in providing managerial and advisory services. The company continues to focus on origination and asset management growth as well as broadening its partner relationships.

An asset-light, fee-driven business model grants revenue visibility as well as supports low capital requirements.

There is a growing demand for manufactured homes as these typically cost ~40% less (on a monthly basis) than equivalent site-built housing or apartment rental. These also have longer durability with the expected useful lives of 55 years. Triad is the market leader originating and servicing prime and super-prime manufactured housing loans.

Triad’s originations are projected to grow ~15% in 2020 at the midpoint. ECN’s Kessler Group has been shifting focus to longer-term, recurring revenue from Partnership and Marketing Services which are typically 3 to 10-year contracts with high renewal probability.

Its customers are predominantly large, federally-regulated financial institutions with investment-grade credit ratings. ECN’s Service Finance offers a one-stop-shop for dealers and homeowners.

It is well-positioned to tap the $126 billion estimated addressable market in 2020. The home improvement market has demonstrated resilience through economic conditions.

ECN expects adjusted operating income before tax of $105 million to $111 million and adjusted net income of $75 million to $79 million for the full year 2020. It has large identifiable market opportunities at hand comprising of a growing base of clients, over $400 billion market for home improvement lending, and $40-$60 billion of credit card assets in play annually.

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ECN Capital competes with the likes of Goeasy, which is a leading leasing and lending company in Canada. The company offers both non-prime leasing and lending services.

ECN’s capital-light businesses as well as scalable platforms and three-decade-long specialty finance experience act as significant competitive advantages. It is difficult to replicate ECN’s business model.

Bottom Line

ECN Capital is known for driving attractive portfolio yields with embedded risk diversifications. The company enjoys investment grade ratings and extensive liquidity across its businesses.

ECN is driving business growth through organic and new programs, and expanding bank and credit union relationships to more than one solution. It expects EPS to range in between $0.36 and $0.41 for FY 2020.

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