Shares of second-hand goods dealer and short-term financier, Cash Converters International Ltd (ASX: CCV), today traded 1.2% lower despite releasing a quarterly report which revealed a healthy jump in revenue and earnings.
In the three months to 31 March 2015, Cash Converters said revenue jumped 9.7% to $93.6 million, whilst earnings before interest and tax, or EBIT, were $14.2 million, up 11.6% on the prior corresponding period.
Whilst the group continues to grapple with regulatory risks, especially within its United Kingdom business, the Australian businesses continued to drive earnings higher.
Although Cash Converters does not expect the Australian Securities and Investment Commission's (ASIC) recent report into 'small amount' credit contracts to result in any major changes to the credit code, the group is continuing to assess how it can respond to regulatory changes in the UK following the introduction of new credit legislation on 2 January 2015.
Personal loan volumes in the UK fell 54.9% during the period, whilst corporate stores posted an earnings before interest, tax, depreciation and amortisation, or EBITDA, loss of $962,206 – down 63.3%.
Overall, Cash Converters' UK businesses produced an EBITDA loss of $1.56 million during the quarter, down from a loss of $800,510 a year earlier.
Should you buy Cash Converters shares?
Payday lending is a tricky business because it is political and therefore highly regulated. Since 2008 the Australian market for payday loans has grown 125%, with Cash Converters and rival Money3 Corporation Limited (ASX: MNY) believed to control up to 75%. As a result of changes in 2013, 70% of lenders diversified their businesses, and 14.2% left the market according to ASIC's recent report.
Looking ahead, Cash Converters says it's well placed for growth with financing and bond facilities in place, strong demand for online cash advances and good cash flow.
On a personal level and following the group's decision to undertake an institutional-only capital raising late last year, I was no longer happy holding Cash Converters shares and sold out of my position in March. It's important to remember that as a shareholder you're also a business owner and you should be able to demand fairness from your company when dealing with capital raisings.
