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Cash Converters shares sink on bad debts, write offs

The Cash Converters Ltd (ASX: CCV) share price is down 7% to 14 cents this morning after the company revealed its unaudited financial results for the full year ending June 30, 2019. Below is a summary of the results.

  • Full year loss between $2m – $4m
  • Revenue around $283m
  • EBITDA (operating income) $22m – $23m
  • EBITDA before FY19 adjustments $45m – $47m
  • Net profit before adjustments $18m – $20

As we can see there’s a big difference (around $16m) between the accounting net profit and what Cash Converters describes as net profit before one offs or ‘adjustments’. 

The adjustments it flags include “accelerated amortisation and depreciation” worth $3.5m, a written off UK IT investment worth $1.6m, $5 million worth of debts being classed as doubtful due to credit risks, $1.4m worth of “restructuring costs”, $0.5m of other miscellaneous costs thrown in as adjustments, and $3.2m of legal costs in defending another class action. 

Judging by the share price reaction this backing out of costs is not washing with investors and it must be said these costs are of varying legitimacy in terms of how an investor should view them in analysing the true performance of a business.

Writing off investments in IT businesses or backing out restructuring costs does not really seem credible, although in fairness a lot of companies will present numbers shorn off depreciation or amortisation. 

As you can probably guess I wouldn’t suggest buying Cash Converters shares on the basis they look cheap or for some other reasons. 

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

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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