Monday 16 February 2015 by William Arnold Company updates

Cash Converters - 1H15 trading update

Solid results reported with revenue up 20.5% to $187.7m driven by personal lending and corporate store revenue

Key points
  • Cash Converters (CCV) reported solid results for the period with revenue up 20.5% to $187.7m driven by personal lending and corporate store revenue
  • Normalised EBITDA increased 31.4% to $32.4m however the group posted a statutory net loss this half given the previously announced $30.8m purchase of licences from development agents
  • FY14 was impacted by the transition to a new regulatory regime for short term lending however 1H15 results are very good and illustrate an ability to grow and improve profitability under the new regulations


financial results summaries
Source: FIIG Securities, Company presentation

  • Revenue up 20.5% to $187.7m, and normalised EBITDA up 31.4% to $32.4m
  • The company however recorded a statutory loss of $5.3m due to the previously announced termination of agreements with development agents Kentsleigh and Cliffview
  • During the half, $30.8m was used to buy licences from Kentsleigh and Cliffview, which have been in place for 10 years and allows them to receive a commission for every loan the company writes. The transaction will end the ongoing obligations and will save approximately $5.7m per year base on the current book size (priced therefore a 5.4x EBIT multiple)
  • The termination has a negative impact of $18.8m after tax for 1H15
  • This was offset with a $45m equity raise during the half
  • The combined UK and Australian financial serviced business produced EBITDA from personal loans of $22.6m (up 23.4% on 1H14) and cash advance service produced EBITDA of $6.1m (up 23.5%)

AUS personal loan book

Source: FIIG Securities, Company presentation

  • The Australian personal loan book grew 22.7% over the year to $115.7m and the cash advance balance increased 5.8% to $128.2m. Bad debt continued to increase from 5.7% the prior period to 6.3% 1H15
  • The UK remains weak but is only a small contributor to the overall group profit with negative momentum and a EBITDA loss 1H15 of $2.3m
  • The UK loan book has been slowly shrinking as the company waited for the outcome of new UK regulations (which have now been announced)
  • CCV continues to see the UK business as viable, and while noting the new legislation will have an impact on margins, it believes that the overall impact will be positive. CCV believes interest rate caps give clarity and comparability, supporting the business model that will see earnings increase as volume grows and provide an area of competitive advantage over smaller operators in the longer term. The main thrust is that while margins will decrease, many smaller operators will be squeezed out of the industry. This has already happened with many businesses closing

Australian regulation: In Australia, there has been an increased regulatory focus in regards to “pay day” lenders leading to legislation in 2013 of caps being placed on the amount of interest and fees that can be charged. These laws are now under review and a report is due in July. There is now also an investigation by ASIC (report due about two weeks). This action has been undertaken due to the rise of various unscrupulous and aggressive lenders some preying on the vulnerable, and various legal actions.

Broadly speaking any illegal or unscrupulous activity is more likely to occur at smaller operators than CCV which has good compliance systems/processes and a management that is well aware of the significant risk posed by non-compliance. However CCV is defending a class action suit dating back to 2013, which they claim is unfounded and ‘vastly inflated’. The current review of the 2013 regulation may lead to tighter caps around pricing and fees which would affect CCV’s profitability. 


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