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Should you buy Cash Converters shares or stick with ANZ and CBA?

is it a buy

The Cash Converters International Ltd (ASX: CCV) share price is trading flat at 20 cents on Tuesday following the release of its half year investor presentation.

This presentation comes roughly three weeks after the release of its half year results and at a time when its shares are trading at a decade-low.

What was in the presentation?

Today’s presentation reminded the market that Cash Converters delivered an 11.6% increase in group revenue to $137.3 million during the first half.

This was driven by a 46.9% increase in Vehicle Finance revenue, a 21.5% lift in Personal Finance revenue, a 3.2% rise in Pawnbroking revenue, and a 2.1% increase in Retail revenue.

Adjusted first half EBITDA rose 9.2% on the prior corresponding period to $24.8 million. This excludes class action, legal, and restructuring costs and the impact of increased provisioning for bad debts due to the adoption of new accounting standards.

Normalised EBITDA came in at $21.4 million, which was down 6% on the prior corresponding, and Cash Converters reported a net loss after tax of $5.2 million. The latter compares to a net profit after tax of $9.4 million in the prior corresponding period and was driven largely the settling of the McKenzie Proceeding for $16.4 million.

The company finished the period with cash at the bank of $74.3 million.

What’s next?

Management believes that Cash Converters is positioned for growth. It expects to achieve this through B2B and B2C business models that can be leveraged and expanded across distribution channels.

It also expects the improvement and expansion of its store distribution network and the development of its digital capabilities to be a driver of growth.

Another final growth catalyst could be its Green Light Auto (GLA). It is a specialist lender providing loans to consumers who may be excluded by other financial institutions’ traditional lending criteria.

The GLA business was a solid performer in the first half, growing EBITDA by 80.7% to $1.6 million. Management believes the business is only scratching at the surface of a major opportunity. It currently has a vehicle loan book of approximately $60 million, but an addressable market worth $1.3 billion per annum.

Should you buy shares?

I think Cash Converters’ shares could prove to be dirt cheap at current levels if management can make the most of its growth opportunities. But until there are signs that this is the case, I would suggest investors stick with traditional lenders such as Australia and New Zealand Banking Group (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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