Guys, Firstly lets note that this is not the first time that the...

Guys,

Firstly lets note that this is not the first time that the government has contemplated legislation which would effectively close the payday lending industry, and to date, at federal level, they have not followed thru. Having said that this looks very serious and rightly terrifying for CCV shareholders.

I hate to tell you but if this proposed legislation gets up then CCV is totally stuffed! As another poster said they currently charge 35% for a loan that lasts less than 1 month, i.e. $35 for every $100 lent (with average loan size circa $230 that is $80, but new legislation would make that $27.60). What also needs to be understood is that is the fee at store level. CCV gets a share of that, maybe one third, but the majority is retained by the store which funds the loan and takes the default risk. I think that the default rates are approx 7%. Thus if they are only allowed to charge 12%, what share do you think the store is prepared to provide CCV when they know that they will lose 7% in defaults. I suspect that even if they didnt pay anything to CCV they would not be prepared to risk their capital for a prospective 5% return, even over 1 month period. It also should be understood that while everyone thinks of Cash Converters as a place to trade and buy second hand goods, their earnings come from the payday lending. Without it I suspect franchisees would be unable to pay the rent, let alone any fees to CCV. Thus if this legislation gets up many, maybe majority of Australian network, will be forced to close their doors.

What makes this even worse for CCV is that they have been aggresively buying stores off franchisees so that they can earn greater margins from the payday lending, less leakage. This is great whilst the music plays, but doubly bad when it stops. They will be saddled with the uprofitable stores and all the property lease commitments. It is also hard to lease small retail stores presently!

Also noted the UK operations are coming off a low base and it will be many years before it could replace lost business in Australia.

I have no doubt that if this legislation proceeds as proposed then CCV is KNACKERED.

Now lets look at the proposed Ezicorp scheme. Just have a look at the material adverse change clause provision. It only needs to "reasonably be expected to result in" a decrease of $4.5m in EBITDA. Is there any doubt that this proposed legislation could result in a loss of EBITDA in excess of $4.5m !!! So expect that EZIcorp are already in deep discussions with CCV on how they proceed, or if they proceed. I suspect that both parties will declare to place the shceme on hold whilst they await clarity of outcome on this proposed legislation. If it does come about then deal off. If it doesn't come about then expect a renegotiation of the price to better reflect a reasonable premium to the current market price! There would have to be an announcement re this very soon. There should also be an announcement by CCV on to what extent their earnings will be impacted if this legislation were to proceed. That will be interesting.

In essence this company has earnt great money out of payday lending, but strategically they should have invested profits in complimentary businesses that did not share the same legislative risk. Instead they have been blinded by the returns from payday lending and have sought to buy out franchisees, in doing so they have further leveraged the legislative risk.

For all shareholders, I sincerely hope that the music does not stop, and that CCV board and management learn from the threat and seek to broaden their earnings base and dilute this omnipresent legislative risk.

Good luck.