CCV - Cash Converters

[odds-on]

I remember some time Monday I wanted to keep CCV on close watch. But I do way too much reading in the morning and I completely forgotten about it. There's my small xmas bonus running away from me...

Skc,

Do not worry there is plenty of money to be made out of CCV. I used to hold a large percentage of my portfolio in CCV and made a very nice profit earlier this year. The remaining holding i intend to keep over the next few years as i am confident CCV will make plenty of cash. There will always be people requiring payday loans, so as long as CCV offers the right products their customer base will never disappear. As ROE pointed out this is $1 stock but i will be surprised if it ever trades at that level in the next 12 months. I certainly will be selling if it gets that high, because CCV will never be a stock market darling trading on some high PE multiple. Not only is there regulation risk that could affect the business model but there is also the risk that it will never trade on a high PE multiple, because once the market is willing to pay a premium the market will not be interested in poverty stocks. If you enjoy trading, then there is plenty of opportunity to make cash when CCV is well below PE of 10. My 2 cents and DYOR.

Cheers

Oddson

 

[notting]

Speaking of research.
When it hits the headlines often trouble follows.
http://www.cnbc.com/id/45579321
Seems like the market over there is quite active with competitors etc.

I remember all these stories about the evil Macquarie owning the water in England and leveraging up on the cash flow and the evil of financial engineering at the expense of the overall good for the community then quickly came the crash. MQG whent from $80 to a low of $14 something.

Although, looking at the Euro plenty of poverty lending is going to be required!

 

[Huskar]

I remember some time Monday I wanted to keep CCV on close watch. But I do way too much reading in the morning and I completely forgotten about it. There's my small xmas bonus running away from me...

Very interesting discussion about how information asymmetries can result in market inefficiencies - and that information is from the government no less!

Out of interest SKC how do you organise your morning reading? I don't do as much as I would like but even still feel rather swamped by information. So much so that I often see merit in Nassim Taleb's isolationist philosophy that "if it is important it will find its way to me".

 

[skc]

Skc, Do not worry there is plenty of money to be made out of CCV.

Probably yes for the fundamental investor with patience, but I was just going to pinch 10-15c from the rise at a point which seemed pretty safe to do so...

Out of interest SKC how do you organise your morning reading? I don't do as much as I would like but even still feel rather swamped by information. So much so that I often see merit in Nassim Taleb's isolationist philosophy that "if it is important it will find its way to me".

Organised is way too strong a word. But I basically just read company announcements, bloomberg, zerohedge, TheAustralian, SMH and Business Spectator.

So much so that I often see merit in Nassim Taleb's isolationist philosophy that "if it is important it will find its way to me".

Funny, but probably only works for person of some importance rather than a sole trader...

 

[suhm]

Do you have a day job? I read the age, afr, businessspectator, the australian (may drop this depending on the pricing of the subscription but the AFR reduced its pricing so may pay for it as well), company announcements for companies I am interested in, some threads in this forum and HC and I find that takes up a lot of my time.

Depending on what job I am doing, I can do this during it but that is not always the case and it means I basically waste my subscriptions some months.

If you have research teams you can let information flow to you but otherwise information assymetry is what I rely on for an edge.

 

[Huskar]

Organised is way too strong a word. But I basically just read company announcements, bloomberg, zerohedge, TheAustralian, SMH and Business Spectator.

Thanks for sharing. I glance at SMH, Business Spectator and Bloomberg and it seems to take up half my morning (though as a student at the moment I can afford the time...).

 

[skc]

Do you have a day job?

Trading is my job

 

[Spudded]

Looks like a win for CCV's and related to the recent jump in trading volume and price over the last few days http://www.dailytelegraph.com.au/ne...s-can-be-slugged/story-e6freuy9-1226281090334... I only wish news like this was readily available on their website...

Sure it will affect there bottom line with their financial products, but it has finally brought some certainty to the issue that plagued them since the EZCORP offer fell through... I wonder what EZCORP are thinking at this stage...

 

[Kipp]

Looks like a win for CCV's and related to the recent jump in trading volume and price over the last few days http://www.dailytelegraph.com.au/ne...s-can-be-slugged/story-e6freuy9-1226281090334... I only wish news like this was readily available on their website...

Sure it will affect there bottom line with their financial products, but it has finally brought some certainty to the issue that plagued them since the EZCORP offer fell through... I wonder what EZCORP are thinking at this stage...

Lol, yes! I only read about this today http://www.smh.com.au/business/anger-over-changes-to-payday-loans-20120424-1xjbf.html 2 months later... pfffttt!

But I don't see how the lending industry can still consider these changes "unworkable". 20% admin fee +4% per month adds up to some serious interest. Also, interesting reading about payday loans in Canada (max charge is $21 per $100 of loan) but given the high default rate is was not such a profitable business for a local pawn shop.
http://www.windsorstar.com/business/Cash+Converters+outlets+sell+good+used+items/6429279/story.html

Personal loans accounted for ~50% of FY11 EBIT, with ridiculous EBIT margins (43%) ---> much more profitable than the retailing side of the business. So I wish I had a better understanding of the regulation surrounding it, and what the worst case scenerio means to earnings. (well, I suppose a worst case scenario is they drop personal loans altogether and lose 50% of EBIT!!!)

Still seem to have a long line of opportunities ahead of them. Store Rollout (NSW only 17 stores), acquiring franchised stores (which is something like 75% of UK total stores, and 60% in Australia). Plus rollout of franchises internationally (Canada, US via EZ Corp). Super cheap valuation at present... and I still think EZ Corp are a great chance to make another bid for the company. Where are the CCV bears out there to talk me out of this?

 

[Kipp]

Lame question - but what % of the company do the insiders hold?
Peter Cumins, Board etc. [Hard to tell from the shareholders register].

 

[odds-on]

Lol, yes! I only read about this today http://www.smh.com.au/business/anger-over-changes-to-payday-loans-20120424-1xjbf.html 2 months later... pfffttt!

But I don't see how the lending industry can still consider these changes "unworkable". 20% admin fee +4% per month adds up to some serious interest. Also, interesting reading about payday loans in Canada (max charge is $21 per $100 of loan) but given the high default rate is was not such a profitable business for a local pawn shop.
http://www.windsorstar.com/business/Cash+Converters+outlets+sell+good+used+items/6429279/story.html

Personal loans accounted for ~50% of FY11 EBIT, with ridiculous EBIT margins (43%) ---> much more profitable than the retailing side of the business. So I wish I had a better understanding of the regulation surrounding it, and what the worst case scenerio means to earnings. (well, I suppose a worst case scenario is they drop personal loans altogether and lose 50% of EBIT!!!)

Still seem to have a long line of opportunities ahead of them. Store Rollout (NSW only 17 stores), acquiring franchised stores (which is something like 75% of UK total stores, and 60% in Australia). Plus rollout of franchises internationally (Canada, US via EZ Corp). Super cheap valuation at present... and I still think EZ Corp are a great chance to make another bid for the company. Where are the CCV bears out there to talk me out of this?

Hi Kipp,

IMO, the key to any investment in CCV is to work out the probability of the draft laws actually being passed. If the laws are favourable to CCV then it will all be on again and with the recent decline in share price a decent investment in the medium term. I will sit down this weekend and do some more research to work out a catalyst timeline – draft laws, FY report etc. I like these situations as the market does not like uncertainty and drives the share price south!

I always wonder with government intervention whether they will actually implement something, it could just be hot air for a couple of years! IMO balance is required, if they make the payday industry uneconomical then the customers will just go to the criminals. There is a demand for this type of service. There is always going to be a % of society that is unable to manage its finances, I am certain of it. No amount of government intervention will change that % of society by a meaningful amount, because it is just the way society id. The banks and financial planners know this too and make a lot of money from people who are unable to manage their finances.

Cheers

Oddson.

 

[Kipp]

But I don't see how the lending industry can still consider these changes "unworkable". 20% admin fee +4% per month adds up to some serious interest.
Personal loans accounted for ~50% of FY11 EBIT, with ridiculous EBIT margins (43%) ---> much more profitable than the retailing side of the business. So I wish I had a better understanding of the regulation surrounding it, and what the worst case scenerio means to earnings. (well, I suppose a worst case scenario is they drop personal loans altogether and lose 50% of EBIT!!!)

Ok - so from skimming their H112 presentation. It has the following info
Aus loan book $64m
Average loan $1028
Establishment fee $250
Av interest - $490
and average term 7mths.
Total to CCV = $740 for $1028 loan

So under the proposed regulation... 4% per annum over 7mths = 28% interest ($280)
+ establishment fee of $200.
Therefore, Total to CCV post the new regulations = $480.

So pretty big drop of approx 33% in gross contribution to CCV. And in EBIT terms could be more serious like a 50-60% drop (as costs associated with administering the loan will remain constant). If I wanted to be bullish it might be argued that there would be some increase in loan activity following the reduced rates. But at 50% per annum, there is still NO WAY that anybody with any financial management would go near such a loan. So I would not be game to suggest increased loan activity.

Ok - so using the assumptions above, less say a 45% drop to EBIT (Using the 60% figure for Australia adjusting for the UK ~ currently 20% of personal loan EBIT). Overall would be ~23% drop to full year EBIT! Ouch, but not a disaster.
To compensate, I suppose the company could re-double their efforts on the UK lending business. Or redeploy capital from loans towards store acquistions and growth opportunities in the event that it becomes totally unprofitable.

Does anyone else out there have their own forecasts on what the new regulations (4%per month) would do to earnings?

 

[Kipp]

Mr. Oddison,
Thanks for your thoughts before. You are right off course, no regulation is certain until it passes (after 5 rounds of reform). So worth discounting any impact to earnings against this chance it does not go through at all.

Do you happen to know who the new shareholders is (12/03/12) very hard to tell from the ASX annct. FMR LLC & FIL??? Bought steadily from End Jan - March 8... 5.1% of company.

 

[Klogg]

A question for those who know CCV well - do you know what sort of monthly interest/admin fees are charged now, in comparison to the 4% monthly/20% admin that are proposed in the new legislation?

I'm currently going through CCV presos and such, but any help would be greatly appreciated.

 

[drworm]

A question for those who know CCV well - do you know what sort of monthly interest/admin fees are charged now, in comparison to the 4% monthly/20% admin that are proposed in the new legislation?

I'm currently going through CCV presos and such, but any help would be greatly appreciated.

I believe they may be running on average across all loans at 24%/6.8% (establishment fee/monthly interest) currently base on the figures on page 8 on their March presentation slides. But not sure how tight these figures are and whether they can be reliably used for these sort of calculations. ie. some may be average while other may be median numbers.

More details: http://investorwag.com/ground-is-shifting-beneath-payday-lenders

 

[VSntchr]

Just having a look through CCV's latest report and I noticed that they spoke of potential securitisation of the
loan books.

Can someone please explain what this would involve in the specific case of CCV?

 

[Tyler Durden]

Just having a look through CCV's latest report and I noticed that they spoke of potential securitisation of the
loan books.

Can someone please explain what this would involve in the specific case of CCV?

I'm just taking a stab at it, but doesn't that mean selling off their loans to 'investors'?

 

[skc]

Just having a look through CCV's latest report and I noticed that they spoke of potential securitisation of the
loan books.

Can someone please explain what this would involve in the specific case of CCV?

- Loans currently sitting on CCV's balance sheet are packaged into loan securities (hence the term "securitise") and sold to investors. Let's call them LOWR (Loan of Welfare Recipients) Premium Income notes.

- CCV sold the future income associated with these loans (so it income reduces), but it frees up its balance sheet from the LOWR sale proceeds to make further loans. It also no longer bears the credit risk on those loans.

- The benefit is that they are able to essentially work their capital harder by recycling them. For potential negatives see some of the causes of the subprime crisis.

 

[Klogg]

CCV sold the future income associated with these loans (so it income reduces), but it frees up its balance sheet from the LOWR sale proceeds to make further loans. It also no longer bears the credit risk on those loans.

Given they have costs associated with creating these loans in the first place, I would also assume that:

- The interest amount earned on each loan is X%
- The interest amount earned by the SPV (company carrying securitized loans) is Y%

And CCV make a profit on this interest rate differential, i.e. X% - Y% (assuming X > Y)

Otherwise, I can't quite see the value in them creating these loans in the first place...
(Please correct me if I'm wrong)

 

[VSntchr]

- Loans currently sitting on CCV's balance sheet are packaged into loan securities (hence the term "securitise") and sold to investors. Let's call them LOWR (Loan of Welfare Recipients) Premium Income notes.

- CCV sold the future income associated with these loans (so it income reduces), but it frees up its balance sheet from the LOWR sale proceeds to make further loans. It also no longer bears the credit risk on those loans.

- The benefit is that they are able to essentially work their capital harder by recycling them. For potential negatives see some of the causes of the subprime crisis.

Thanks for that.
So would I be correct in thinking that another positive is that by freeing up capital to make more loans they are essentially growing the brand name/quickly gaining more customers and eventually down the track won't have to keep securitising because as the business matures the cashflow from operations is more than sufficient to self-fund the loanbooks..?