In the last three weeks Cash Converters have quietly announced...

In the last three weeks Cash Converters have quietly announced in the UK media the sponsorship of two well known football clubs being Hull City and the Scottish team Motherwell. They are spending hundreds of thousands of pounds in the UK on sports sponsorship. Sponsoring two teams is certainly a signal that they are confident of their future in the UK. I note they are also the major sponsor of the Western Australian Reds which is a rugby league team trying to enter the NRL in 2013. At no stage have they announced to the market these football sponsorships.

Cashies major competitor in the UK is a company by the name of Albemarle & Bond, which unlike Cash Converters, has released in late May 2011 to the UK market an update on trading conditions which in the UK are very good. I will continue to monitor their performance to ascertain the trading conditions in the UK.

The rights to the brand in Canada have recently been purchased by their US suitor EZCORP which has announced that it intends to rebrand some shops over to the Cash Converters brand. The last quarterly report from EZCORP makes interesting reading. They are making great returns on their money.

There are two broking houses that cover Cash Converters being Hartleys and Ord Minnett. Hartleys recently upgraded their recommendation to a buy to match the rating of Ord Minnet. Broker reports are available from the Cash Converter website. They are a must read!

If you are still having concerns about the business model, have a read of the last half yearly report, read the top of page 17 of the half yearly report. From an accounting perspective, if the acquisitions that Cash Converters made during the six months had of been made at the start of the period, according to the company the profit would have been just over $17M for the half or a 70% increase from last year.

I have concerns about possible regulation; however, these concerns are not new, they have been there for years and I thought had been factored into the share price. I personally think major change will be too hard to introduce given the current political climate and the status quo will continue in some form. Will be interesting to see the outcome. I believe governments look for best practice and I have been told that in the payday lending field, the Cashies model is almost there.

When Cash Converters initially announced a scheme of arrangement to take 30% of my holding, I felt somewhat annoyed. They were triggering off an unwanted capital gain. I wrote to the directors with my concerns and got the following response in early April. We acknowledge your concerns. Peter and I and our management team all have shareholdings which represent the bulk of our personal assets. We believe that the proposal is in the best interest of all shareholders. If the proposal is approved, we think that the value of the balance of our shares will increase much more over the next few years than would have been the case otherwise. The offer is at a price which will be a record for our shares. We do not think control is passing too cheaply. However, opinions on this may differ and that is one of the reasons why we decided to use the scheme of arrangement route. This method enables shareholders to vote on the proposal collectively with EZCORPs substantial shareholding excluded. We have a real interest in maximising shareholder value and we hope that you will agree with us once you have received all the paperwork.

In the last few weeks I have completed a backflip, I have increased my holdings and will certainly be voting yes when it finally goes to vote. If anybody thinks the share is worth more than 91 cents, then logic suggests that they should be in buying. Pawn something if you have to, just buy them!