Chess group (TSX: CHW) is the only public company in North America focused exclusively on financing commercial equipment for small and medium-sized businesses. The main ongoing activities of the company are carried out through three subsidiaries called Pawnee, Tandem and Blue Chip. Pawnee finances commercial equipment for small and small notes in the United States (US) through the third-party brokerage channel. Tandem sources original micro and low cost commercial equipment in the United States through the equipment supplier channel. Blue Chip finances commercial equipment across Canada.
The company has a price-to-book ratio of 1.21, a dividend yield of 2.6% and a market capitalization of $ 149 million. Debt is very high at Chesswood, as evidenced by a debt-to-equity ratio of 4.45. The company has excellent performance indicators with an operating margin of 29.84%.
The most important operations of the company are carried out by Pawnee, which accounts for 84% of consolidated revenues. Pawnee specializes in financing equipment up to $ 250,000 to small and medium-sized businesses in the United States, with a wide range of credit profiles, from start-up entrepreneurs to more established businesses, through a network of approximately 600 independent brokers in equipment financing.
Pawnee limits the size of transactions for non-privileged companies as a risk mitigation measure. These unprivileged market niches are generally not served by most conventional funding sources, as they have a generally higher risk profile. To manage the additional risk associated with financing businesses in these niches, Pawnee management has implemented a disciplined operating model that has historically enabled Pawnee to achieve higher net margins than many typical finance companies. The gradual expansion of Pawnee’s product offering has allowed it to become a much larger source of funding for broker clients.
In early 2019, the company launched Tandem, located in Houston, TX, which provides equipment financing to small and medium-sized businesses of all credit profiles through equipment vendors and distributors in the United States. . third-party channels, equipment vendors and distributors typically form long-term partnerships with funders which typically result in programs that generate build-up and revenue over many years.
In 2019, Tandem generated $ 31 million in funding and was supported by Pawnee’s Credit, Documentation, Collection and Administration departments, which provide administrative support to Tandem.
Chesswood’s Canadian operations are led by Blue Chip, a company specializing in financing equipment for small and medium-sized businesses. Blue Chip represents 15% of consolidated sales. Acquired by Chesswood in March 2015, Blue Chip has 30 full-time equivalent employees.
Based in Toronto, Blue Chip issues debt across Canada sourced from a nationwide network of over 50 independent equipment finance brokers and through direct and in-house origination efforts through equipment vendors. . It derives substantially all of the revenue from finance leases and loans and related service charges.
Recently, Blue Chip began to offer a single source of commercial equipment financing for all categories of credit. Blue Chip also provides funding to a small number of condominium associations for building improvements. These secured loans generally have terms ranging from three to five years.
Chesswood is well positioned to take advantage of a boom in equipment financing opportunities.
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Foolish contributor Nikhil kumar has no position in any of the stocks mentioned. The Motley Fool recommends CHESSWOOD GROUP LIMITED.