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Cash America will spin off online loan operation
September 16th, 2011
It’s all about money, money and more money
The Fort Worth-based operator of pawnshops, Cash America International, said that it will spin off a majority of its online lending subsidiary, Enova International, in an initial public offering that could raise up to $500 million. Investors applauded the announcement, sending the company’s shares (ticker: CSH) up $4.11, or 7.3 percent, in heavy trading to close at $60.63, a new high.
Enova
Cash America said it will retain 35 to 49 percent of Enova after the offering, which it said is subject to market conditions. Chief Financial Officer Tom Bessant said the percentage will depend on whether underwriters exercise overallotments to meet market demand for shares. Enova makes consumer loans averaging a little more than $500 via the Internet in the US, Canada, UK and Australia. Some are short-term “payday” loans of seven to 45 days, and others, especially in the UK, are installment loans repayable over four months to three years.
Annual number
Enova made nearly 5 million loans last year, according to a disclosure statement filed Thursday with the Securities and Exchange Commission. Enova was founded in 2004 in Chicago, where its offices and management team remain. Cash America acquired Enova five years ago for about $250 million, including $35 million upfront and additional payments that were contingent on the company’s performance. Enova’s CEO will be Timothy Ho. Cash America CEO Dan Feehan will serve as executive chairman.
Great acquisition
“It’s been a wonderful acquisition,” Bessant said, but Cash America found that “the market couldn’t differentiate between Cash America’s bricks-and-mortar business and our e-commerce,” which consists entirely of Enova’s operations. He said the spinoff will give Enova “its own identity” and allow it to be valued for its own operations.
Pawn business
“Investors like the pawn business” and will likely reward Cash America for making payday lending a smaller part of its operations, said David Burtzlaff, a financial analyst who follows the company for the Dallas office of Stephens Inc. But even if U.S. laws are toughened, a growing share of the online payday business is overseas, he said, and in any event, “I don’t think the short-term credit product will be eliminated.”
Resisted
Cash America, the world’s largest pawnshop chain, initially resisted entering the payday loan business. But in 1999 it concluded that its pawn operations were losing too much business to payday lenders, and it started test-marketing the loans, which carry a fee based on loan size. Pawn loans and merchandise sales still make up most of Cash America’s revenue, but payday loans have grown steadily. In the first six months of the year, payday loan fees accounted for $256 million, or 37 percent, of the company’s $689 million in total revenue.
Pawn Shop and Payday Loan Stocks Are Looking Good
July 9th, 2011
The jobless aren’t finding work and companies are profiting from their bad fortune
Investors looking for good stocks may want to follow the lending money as the jobless rate inches up and the economic recovery sputters.
Ezcorp Inc
Profits at pawn shop operator Ezcorp Inc. have jumped by an average 46 percent annually for five years. The stock has doubled from a year ago, to about $38. And the Wall Street pros who analyze the company think it will go higher yet. All seven of them are telling investors to buy the Texas, company. Is the economy in a soft patch or a hard patch? Will the market rise or drop? In investing, it’s often better to focus on what you can safely predict, even if that safety is found in companies that thrive on hard times.
Payday lender
Stock in payday lender Advance America Cash Advance Centers has doubled from a year ago, to just under $8. Rival Cash America International Inc. is up 64 percent, to $58. Such firms typically provide high interest payday loans to people who can’t borrow from traditional lenders.
Others
Profits at Encore Capital Group, a debt collector that targets people with unpaid credit cards bills and other debts, is up 59 percent from a year ago, to more than $30. Stock in Rent-A-Center, which leases televisions, couches, computers and more, is up 57 percent from a year ago to nearly $32. Nine of the 11 analysts covering the company say it will rise further and that investors should buy it.
Unpalatable but profitable
The idea of investing in companies catering to the hard-up might not be palatable to some people. But it is profitable. Mark Montagna, an analyst at Avondale Partners in Nashville, has developed what he calls “value retail” index of 11 companies, dollar stores, off-price shops and clothing and footwear chains favored by shoppers looking for deals. The index is up 149 percent since February 2009, which marked the lowest month-end closing value for the S&P 500 during the recession.
Desperation stocks
Desperation stocks continue to be lifted by bad news. Consumer spending, adjusted for inflation, has fallen for two months in a row, the first back-to-back fall since November 2009. On Friday, the government reported the unemployment rate rose to 9.2 percent in June, sending stocks into a tailspin. On top of that, one in seven Americans now live below the poverty line, a 17-year high.
A good year
“It’s been a good year,” says John Coffey Jr., a Sterne Agee analyst, referring to the companies he follows, not the economy. Coffey created a stir late last month when he issued a report arguing shares of Ezcorp, which also makes payday loans, were worth a third more than their price and urged investors to buy. The stock rose 7 percent in just a few hours. The next day a widely followed survey showed consumer confidence at a seven month low.
Recovery and confidence
“Here we are celebrating the second year of recovery and confidence is at levels consistent with a recession,” says David Rosenberg, an economist at money manager Gluskin Sheff. “The folks in the survey are probably not the same folks shopping at Tiffany’s.” That company’s stock is also up nearly 50 percent since March, to about $82.
Still shopping
They are probably shopping at Dollar General Corp. Stock in the discount retailer recently hit $34.13, up 50 percent from its IPO in late 2009. And it may be worth about a third more, at least according Avondale’s Montagna. “People are broke. They’re all chasing value. It’s a seismic shift in mindset,” he says.
Down-and-out stocks
Some experts think these down-and-out stocks are just as likely to fall now instead of rise. It’s not that they think the recovery will turn brisk and people will get jobs and shop elsewhere. It’s that things could get worse, making customers too poor to borrow or buy even from these outfits. Rent-A-Center, the furniture store, is already suffering. Some of its core low-income shoppers have seen money they would have spent leasing a couch or cocktail table eaten up by rising food and fuel bills.
Renting furniture
But not to despair. According to Nick Mitchell, an analyst at Northcoast Research, wealthier customers, say those making $45,000, are feeling so strapped lately that they’re starting to rent furniture, too. Montagna, the Dollar General bull, says he’s seeing people earning $70,000 or more at that chain, too. Even he shops there now.
“If I’m driving past one, I stop in,” he says, adding triumphantly, “I just bought toothpaste. Crest, two tubes for $4.”
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