Author Topic: EZPW - EZCorp  (Read 65100 times)

yadayada

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Re: EZPW - EZCorp
« Reply #10 on: January 15, 2014, 11:56:30 AM »
Only 3.8 million of gross profit is gold scrapping, or about 14%. But I guess this all stands on the fact that profits are temporarily down due to collateral becoming worth less in that period? Once gold stabilizes, this should pick up? Anyway, I dont think I know enough about all this to get really comfortable :) .

edit: 12 million of gross in 2012 was gold scrapping. with about 13 million in net profit total, how much would net profit be if gold scrapping business is killed off mostly? Cannot imagine that being more then a 2-3 million hit?
« Last Edit: January 15, 2014, 12:01:56 PM by yadayada »


racemize

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Re: EZPW - EZCorp
« Reply #11 on: January 17, 2014, 06:40:36 AM »
kevin4u2

no_free_lunch

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Re: EZPW - EZCorp
« Reply #12 on: January 18, 2014, 06:17:17 AM »
I read Kevin's article too, that and some digging on seeking alpha got me into the stock.

What I find fascinating about this idea is how high the street estimates are.  If they hit estimates of $1.5 2014 & $1.9 2015, then how can they trade at $10.40?   It would need to go at least $17 if the earnings are stabilizing at $1.9.   We aren't even thinking about growth at those levels either.  Now the street can definitely be wrong with it's estimates but since the market basically IS the street, then what is going on?   There is this disconnect between the street estimates and the market value which I am betting get's reconciled in the street's favor.

It also has the attribute that the price is  not heavily influenced by the US PE valuations.  This is just due to how cheap it is on an earnings basis.  The market can trade down significantly and so long as EZPW hit's their numbers the stock should move up.
« Last Edit: January 18, 2014, 06:21:32 AM by no_free_lunch »

no_free_lunch

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Re: EZPW - EZCorp
« Reply #13 on: January 18, 2014, 06:20:20 AM »
There is some great information in the comments section of this seeking alpha post:

http://seekingalpha.com/article/1344141-ezcorp-inc-like-all-value-investing-hidden-in-plain-sight

From the comments:

Quote
Yep, you are on to something! I'm currently living in Mexico and I can tell you that here we already have legislation that prohibits what politicians consider predatory lending practices.

What's politically correct is not always logical or feasible, but what companies like EZCorp are doing to solve this issue without confronting politicians and public perception is to charge a small part of its services as interest and a bigger part as pledged services, valuation services and warehousing of collateral services, among other smaller services with a differentiated charge.

racemize

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Re: EZPW - EZCorp
« Reply #14 on: January 28, 2014, 03:25:13 PM »
http://www.marketwatch.com/story/ezcorp-reports-revenues-of-269-million-and-earnings-per-share-of-042-2014-01-28?reflink=MW_news_stmp

Not bad for the quarter.  $0.42, but with a one time add on of $0.03 for a sell of a set of pawn stores.  However, there's also a bit of noise from A&B (expect a full write down next quarter) as well as some other losses that are expected to dissipate on the back half of the year.  Cautiously optimistic for $1.6+ for the year; we'll see.

no_free_lunch

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Re: EZPW - EZCorp
« Reply #15 on: January 28, 2014, 10:34:28 PM »
I will need to see the 10q but i like what was in the release.   Like they said in the release next quarter is a tough comp but after that its smooth sailing, i hope.   All they need to do is continue to do what they have been doing for the past decade and it should be a double.

racemize

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Re: EZPW - EZCorp
« Reply #16 on: January 29, 2014, 04:33:33 AM »
I will need to see the 10q but i like what was in the release.   Like they said in the release next quarter is a tough comp but after that its smooth sailing, i hope.   All they need to do is continue to do what they have been doing for the past decade and it should be a double.

It certainly seems that way.  Not sure why the market has put the price so low--I've been scratching my head for a few weeks now. 

Given the results, I would expect >$11 price today, but the pre-market hasn't gotten much over that.

yadayada

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Re: EZPW - EZCorp
« Reply #17 on: January 29, 2014, 04:52:21 AM »
Maybe the market is scared of the negative cash flows? If you add up investing activities except for cap exp, acquisitions and write downs, then they are losing alot more suddenly in 2013. 88 million in 2013 compared to about 41 million the year before. This is probably due to growth, but the sudden bigger difference is due to lower prices of gold impacting their pawn business? Which is another risk. It was about -26 million in 2008 for example, so it is not variance. The other reason is probably the same reason HP got so cheap. The market is afraid they will be reckless with expansions just to chase nice earnings. This deflates their earnings in the long term, because part of their nice earnings from the past will not be realized into cash because of overexpansion. And they have to be written down.

Third reason is regulation I think. Looking at all this, it is still cheap, but not as cheap as it looks I think. Allthough the first reason is probably not legit, unless gold keeps dropping further in the next 2 years.


Rainforesthiker

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Re: EZPW - EZCorp
« Reply #18 on: January 29, 2014, 05:15:07 AM »
I believe the main reason for their decline in reported earnings in 2013 was due to some (mostly) one time charges related to writing down their stake in A&B (the UK pawn lender), closing 20 or so payday lending stores in Dallas due to regulatory issues, and repurposing some of their Mexico jewelry scrapping stores to pawn shops.  They will likely have another A&B writedown in the next quarter of approx. $7.9 million and then that should be completed.  Then it seems the earning power of the enterprise will show through, possibly from $1.60 to $1.80 per share.  There is certainly some regulatory and management risk here, but it seems that the real reason the stock has been underpriced is that people were viewing their 2013 reported earnings as the new normal in a downtrodden pawn/lending business, rather than merely one time charges that will not recur.
The key question:  What is the "inefficient rationale" - the reason the market is mispricing the stock.  Why doesn't the powerful force of the wisdom of the crowd manifest here to produce the correct price?

racemize

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Re: EZPW - EZCorp
« Reply #19 on: January 29, 2014, 05:19:17 AM »
Maybe the market is scared of the negative cash flows? If you add up investing activities except for cap exp, acquisitions and write downs, then they are losing alot more suddenly in 2013. 88 million in 2013 compared to about 41 million the year before. This is probably due to growth, but the sudden bigger difference is due to lower prices of gold impacting their pawn business? Which is another risk. It was about -26 million in 2008 for example, so it is not variance. The other reason is probably the same reason HP got so cheap. The market is afraid they will be reckless with expansions just to chase nice earnings. This deflates their earnings in the long term, because part of their nice earnings from the past will not be realized into cash because of overexpansion. And they have to be written down.

Third reason is regulation I think. Looking at all this, it is still cheap, but not as cheap as it looks I think. Allthough the first reason is probably not legit, unless gold keeps dropping further in the next 2 years.

I hadn't paid attention to the investment activities you pointed out.  They've been discussing their increased loaning in new generation of pay day lending as well as the expansion to online lending, so perhaps that represents some of the changes.

Regarding lower gold prices, they did discuss a shift to higher merchandise, which is harder to deal with than gold, due to depreciation (apparently most new collateral, particularly in Mexico, is cell phones).  That being said, they've been dealing with merchandise for a while, so I would assume they could deal with an incremental shift. 

They've done a lot of expansions in late 2012-2013.  In the call, it seems as though they are going to re-trench and get everything managed with what they just finished, especially given the gold headwinds.  They need to get their expenses down and get the online lending working (indicated this should happen in 2nd half, we'll see).  Moreover, in second-half 2013, they did discontinue a lot of operations and weren't expanding, so seems like some hope in them not doing crazy expansions.  Further, I talked with an industry expert, and he said he buys pawn shops for roughly 2-3x earnings.  He said that from his experience, EZPW buys them at 6-7x earnings.  Seems like a good way to expand generally, as long as they use cash or debt and not stock.  Also, there's a huge runway, as the big pawn chains only own 10% of NA pawn shops.  They can keep doing this for years.

Regulation is definitely an issue, which is why they are diversifying location and types of loans.  One thing to note, from the expert I talked to, is that in states where pay day lending was outlawed (e.g., North Carolina), the pawn business immediately shot up, almost offsetting the loss in revenue from the pay day loans.  That ameliorates some portion of the concerns. 

I guess putting it all together, you could justify a $11 dollar price with just a little over $1 of earnings if you wanted to.  It seems as though earnings should be coming back and returning to growth over the next few years, once they get through the gold headwinds.  If you were willing to put a higher multiple than 9 or 10, you can easily see a price >$20 in a year or so.

I've kept the position relatively small due to regulatory concerns, management concerns, and governance issues, however.  I'll be very interested to see how it all plays out.