ECN Capital Growing Fast

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 has 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.

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Investment Data

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Revenue Growth & Market Exposure

ECN Capital serves more than 100 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 $33 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 requires 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. with a network of more than 3,000 manufactured housing dealers. The company is also growing through accretive tuck-in acquisitions.

ECN’s SFC experienced continued market share gains and above-average dealer growth registering dealer base growth of ~23%+ CAGR since investment. It ended the latest quarter with a backlog of ~$311 million in April 2021. ECN is estimating servicing revenue to comprise 46%-50% of total revenue in 2021.

Triad also continues to add and diversify funding partners. Its originations are projected to grow by ~50% in 2021 at the midpoint, as a result of strong core growth and new programs. KG currently has ~$27 billion in managed credit card portfolios and related assets. The results of legacy discontinued operations were eliminated in Q1 2021.


ECN is a Dividend Aristocrat. It sports an annual yield of 1.2% and a high payout ratio. It last raised its dividend by 11% in 2019 and has grown it at a rate of more than 35% CAGR in the last three years. The company is also active in NCIB and repurchased both preferred and common shares in the last quarter. 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 than equivalent site-built housing or apartment rental. These also have longer durability with expected useful lives of 55 years. 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. The home improvement market has also demonstrated resilience through economic conditions and the Home Improvement Research Institute now expects incremental spending of ~$254 billion in home improvement through 2024.

ECN expects adjusted operating income before tax of $143 million to $161 million and adjusted net income of $121 million to $133 million for the full year 2021. It has reiterated its 2021 Adj EPS guidance range of $0.46-$0.51 which represents a growth of ~50% at the midpoint. It has large identifiable market opportunities at hand comprising of a growing base of clients and credit card assets in play, and a large market for home improvement loans.

ECN Capital historical yield
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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. Its businesses are expected to gain on the back of attractive new programs such as Big-Box Retailer and All-In-One, the rollout of turn-key BaaS program, and a strong pipeline.

ECN Capital historical PE
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DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.