S. Senate that would cap consumer loans at 36% and challenges based on “rent-a-charter” or “true lender” theories

While we acknowledge certain risks associated with subprime lending (read the risks section below), for reasons already discussed, we think OPFI deserves to trade at a higher valuation multiple than the non-fintech, slow growing lenders from which it is very likely to continue taking market share.

Given that we project 20% annual EPS growth for OPFI from 2021 through 2023, we suggest $12 as a baseline 12 month price target. We derive $12 by applying a 20x multiple to $0.99, the average of our 2022 and 2023 EPS estimates, and then applying a 40% discount due to anticipated dilution (read the risks section below).

Our bull case, assumes OPFI generates higher-than-expected origination and EBITDA growth and market perception substantially changes such that OPFI commands an even higher valuation multiple, more in-line with fintech players. With a matching its top-line growth rate, OPFI could trade as high as $25, 40x multiple to $0.99 that is discounted by 40% for dilution. Conversely, we think there is downside to our price target if origination growth is slower than expected or new state or federal laws cap the interest rates that OPFI can charge customers. Therefore, our bear case would be $5, representing 5x to $0.99 and no dilution discount as potential dilutive shares (and warrants) would be worthless.

Catalysts

1. Increase in 2021 guidance. When OppFi reported 2Q:21 results in August, the full-year guidance range was narrowed lower, citing the impact of government stimulus programs and the COVID-19 Delta variant. However, we think the current environment is much more favorable for OPFI, with rising consumer prices, lessening impact from the Delta variant, and the elimination of unemployment benefits along with a disappointing labor market. In addition, in late September, ELVT announced that “consumer credit has recovered faster and stronger than originally expected” and we think this bodes very well for OPFI.

2. New product launches. We expect OppFi to launch a “buy now, pay later” product, as well as a mobile banking platform in the next 12 to 18 months.

3. De-risking regulatory risk. Given the current regulatory risk associated with subprime lending, we think some investors are waiting for government action that would significantly reduce or eliminate threats to the interest rate that OppFi could charge consumers in exchange for sensible protections for consumers.

Risks

1. New regulatory action. While the regulatory risks that OppFi manages are real, we believe the perceived magnitude are exaggerated by those who conflate OPFI with payday lenders. Nonetheless, OPFI is confronted by an unlikely to pass bill in the U. However, giving support to OPFI and its peers, according to a study by the Federal Reserve Board, break-even for a $2,530 loan is a 36% ounts). Therefore, a 36% interest rate cap would effectively eliminate small dollar loans, an unlikely outcome.

2. Highly concentrated bank partners. OppFi relies heavily on a small group of bank partners who utilize its digital lending platform and act as the “true lender” for installment loans. During 1H:21, FinWise accounted for 68% of net originations. However, OPFI actively seeks to grow its bank partnerships.

3. Dilution. There are currently 85 million shares outstanding. However, assuming OppFi shares appreciate to the mid-teens over the next three years, are payday loans legal in New Jersey an additional 25 million SPAC-related earn-out shares would be added to the share count. In addition, 14 million public-traded warrants are exercisable when OPFI trades at $ and another 13 million shares could be added to the share count from the management equity incentive plan and employee stock purchase plan. However, we also suggest that notwithstanding the significant dilution on a percentage basis, the actual effect on the share price may be minimal if OPFI commands a higher valuation multiple due to its growth, new product offerings, and recognition as a true fintech.