Pawn shop operator and payday-loan financier Cash Converters International Ltd (ASX: CCV) is not in a very flashy industry. Perhaps it's for this reason that the market has yet to appreciate the real value of this business.
FY 2014 was a rough one for Cash Converters, culminating in a year-on-year fall in net profit of 35.7%. Regulatory changes to fees charged on micro-loans affected its business and forced an adaptation to the new business environment. This was certainly an obstacle for expanding the business, but was always going to be just a short-term setback .
The market has not been kind to Cash Converters in the months since it announced the disappointing fall in profit. Its share price fell from nearly $1.20 a share in mid-August to below $1 about a week ago. This fairly substantial dip reflected the transitory period that Cash Converters had to go through following the legislation changes. However, with the release of its quarterly trading update, I think it's time to take another look at Cash Converters.
On the day Cash Converters released its quarterly trading update, the share price jumped around 9%. Key to this quarterly trading update was strong revenue growth – up 26% compared to the same quarter last year. This is perhaps a sign that the headwinds that Cash Converters faced are now largely behind it, and that it has adapted strongly to the changes in micro-loan regulation.
2014 reflected a retreat for the business, but with continued expansion plans for its retail stores, and consistently growing micro-loan business, estimates put Cash Converters growing earnings by 30% in the next year.
With short-term obstacles seemingly in the past, strong growth prospects in the future, and a fully franked 2.9% dividend yield, there's a lot to like about Cash Converters at the moment.
