new broker report from baillieu holst

Cash Converters (CCV)
COMPANY REPORT | INITIATION OF COVERAGE
Pawn cracker

RESEARCH ANALYST
Nick Caley
+61 3 9602 9283 [email protected]

RECOMMENDATIONS
Rating BUY?
Risk Medium
Price Target $1.45
Share price $1.19

Initiation of coverage: We initiate coverage of Cash Converters International (CCV) w ith a BUY call, DCF valuation of A$1.44 and
price target of A$1.45.
History: CCV w as f ounded in 1984 w hen Brian Cumins, the Company's f ounder and f ormer Chairman, opened a retail outlet in Perth,
Western Australia. In 1990 CCV expanded into other Australian States and in 1991 expanded into the UK. CCV now has
representation in 21 countries.
The business: CCV’s core business is the ow nership and f ranchising of retail stores w hich undertake paw n broking services, second
hand goods retailing and the provision of consumer credit. Stores in Australia and the UK are a mix of ow ned and f ranchised
operations w hilst the rest of the w orld is f ranchised – largely on a passive royalty model.
Pawn cracker: CCV has a number of material revenue streams including f ranchise f ees, operating and marketing levies, personal
loan interest, paw n broking and loan administration on behalf of f ranchisees. The grow th engine of the group is the provision of short-
term personal loans – this activity accounted f or 38% of revenue in 1H13 yet contributed 60% of the group’s result.
FY13 – growth interrupted: Whilst the passing of the Consumer Credit Legislation Amendment (Enhancements) Bill 2012 has
largely lef t CCV unscathed, increased procedural requirements f or loans under A$2k has resulted in a signif icant slow ing of loan
volumes in recent months leading to subdued guidance f or FY13. CCV believes many of these procedural issues have now been
addressed and grow th is resuming.
Major shareholder: NASDAQ listed EZCORP Inc, currently ow ns 33% of the issued capital of CCV. EZCORP also holds various
state based master f ranchise licences f or Cash Converters in the US and Canada.
Financial position: At 1H13 CCV had gross debt of A$34m w ith net debt to equity of a modest 5%. In March 2013, CCV stated that it
had obtained a 2 year A$60m securitisation f unding capability through Westpac to f und up to 70% of each loan originated w ithin its
personal loan book. We understand that that the recent acquisition of 11 f ranchised stores in Australia f or A$33m w as largely debt
funded.
Investment view: BUY call supported by: 1) stock looks to be cheap versus our DCF valuation; 2) strong grow th track record w ith 8
year CAGR revenue and EPS grow th of 44% and 19% respectively; 3) f orecast double-digit EPS grow th through FY14 and FY15; 4)
multiple grow th and yield enhancement options through managing the mix of f ranchise and ow ned stores; 5) CCV now appears to be
ex-regulatory risk in Australia; 5) securitisation f unding underw rites grow th; and 6) the stock has pulled back f rom recent highs based
on w hat w e view as a temporary slow ing of lending volumes.

This communication has been prepared and issued by
Baillieu Holst Ltd
ABN 74 006 519 393
AFS Licence No. 245421
Participant of ASX Group, Participant of NSX
Participant of Chi-x Australia