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General Category => Investment Ideas => Topic started by: racemize on January 14, 2014, 07:19:41 PM

Title: EZPW - EZCorp
Post by: racemize on January 14, 2014, 07:19:41 PM
This investment definitely has some issues, so prepare to hold your nose (This came from Kevin, btw).  EZ Corp makes money via various consumer loans (pay day, title, multistage, etc.), the pawn business, and gold scrapping.  During the recession and gold boom, EZ Corp had significant tail winds and the gold scrapping business did really well, and became as high as 33% of earnings.  However, 1) gold prices have dropped in the last year; 2) competition for gold scrapping has increased dramatically; and 3) people have run out of gold reserves to go sell to the increasing number of scrappers.  Accordingly, this portion of the earnings has decreased dramatically.  A side effect of gold dropping is that loan balances for the pawn business has decreased, since gold is often used as collateral.  Thus, the falling gold prices have had a big impact on the business.

Several things happened in 2013.  First, EZ Corp decided to discontinue several gold only shops in Mexico and transform some smaller shops to full pawn stores in Q3, because of the issues above.  This resulted in a charge of ~$0.40/share charge.  Then, in Q4, they wrote down their 30% investment in A&B pawn in the UK, which overleveraged itself on the gold scrapping business and has now put itself up for sale.  That write down was ~40 million down to 10 million on the books, which is ~0.80 cents a share.  Adding just these two back to full year earnings of ~$1.8/share.  It is now selling at 11 per share, giving you a pretty low earnings multiple.  It seems to me they kitchen sinked Q4, but if you normalize that Q and extrapolate it, you get somewhere in the $1.53 range.  Street consensus is for 2014 to show 1.44/share and for 2015 to show 1.92.  Valueline expects earnings of $2.25/share in 2014.  Earnings in 2011 excluding gold scrapping was $1.41 and in 2012, $1.88. 

Other issues: they had some bad underwriting on a few new loan products, including their new online venture.  Bad debt for some loans increased fairly dramatically, but Q4 conference call indicated that they had done this on purpose and that essentially the new bad debt level was targeted and still profitable, allowing them to increase their loan book (I think referring to title loans).  Additionally, gross margins dropped significantly, and needs to come back in line to historic levels, which they indicated they will focus on.

So all that is the good news—here’s the bad news.  The governance is awful.  Really awful.  First, there’s an A/B structure, and the publicly traded shares are non-voting.  The single holder of the voting shares is Phillip Cohen, who has been described as a crook.  He’s had this same structure before with Friedman’s who eventually went bankrupt due to major fraud by the CEO/CFO.  Cohen settled for 200k.  Cohen pays his company 6,000,000 a year for “advice” and they cover additional incidentals.  He’s also got the chairman in his pocket.  However, this has been true for 15-20 years, so the market has ignored it in the past and it hasn’t blown the company up.  There’s also potential regulatory issues, particularly with payday loans, but in areas where payday loans have been banned, the pawn business does a lot better, since the same people need the money.
Title: Re: EZPW - EZCorp
Post by: racemize on January 14, 2014, 07:20:55 PM
Here's Kevin's original write-up from the highest conviction thread:

Quote
EZPW.  Here is the write up I put on my blog.  http://canadianvalueinvesting.blogspot.ca/

Ezcorp had an unusually bad year in fiscal 2013 for a couple of reasons. The biggest reason for this was the huge drop in the price of gold. Gold started 2013 at around $1700 per ounce and ended around $1200 per ounce. That 30% decline contributed to some really tough business conditions. In the pawn business, gold and jewelry are the two most common forms of collateral. Moreover, unless you’ve been living under a rock in recent years, the gold scrapping business has been big business. 
 
Conditions in Mexico were extremely tough for the company in the gold pawn business. On the latest conference call they discussed how competitive it has gotten down there. The industry got so competitive that everyone was posting the price of gold they were willing to pay for scrapping. That squeezed margins. This also led to the closure of 57 gold only stores in Mexico. 
 
Now to add more insult to injury, the company recorded a $43 million ($29 million after tax) impairment charge on its investment in Albemarle & Bond. The UK pawn lender had a very tough year and was delayed in releasing their financials. This wrote off the majority of their investment in the company. Albemarle is now for sale. 
 
Lastly, the company’s operating expenses have gotten way out of line. In 2011 operating expenses were 33% of revenue and in 2012 they were 34%. In 2013, operating expenses rose to 41% of revenue. This is obviously not very good performance but leaves lots of room for improvement. 
 
So what does all this mean? Basically EZPW was still profitable in 2013, albeit marginally. Earnings have risen every year since 2002. The company sells for 70% of book value.  Book value has grow at 17.5% over the past 10 years.  Debt is only 19% of total capital so they are not heavily financed.  Interest is well covered.  There are a few weird quirks with this small cap but I won't bother you with them here (read the 10-k and listen to the conference call for details).
 
If you exclude the one-time expenses that occurred in 2013 the company would have earned around $1.70 per share. That works out to a current P/E ratio of 6.5. Now if you, like me, assume that the gold scrapping hay-days are over (no recovery of this business) but they can reduce operating expenses by 3%, then EPS will rise to $2.35 per share (P/E = 4.7). If operating expenses can get back down to historical levels of 34% of revenue, EPS will rise to $2.95 per share (P/E = 3.7). 
 
It doesn't take an advanced degree in math to see that EZPW is worth at least double the current quote (at a minimum) and up to four times the current quote (at a maximum).  Let's call fair value roughly $30/share.  It currently sells for around $11.50, down from the $30 level a couple years ago.
Title: Re: EZPW - EZCorp
Post by: APG12 on January 15, 2014, 05:24:37 AM
Cohen pays his company 6,000,000 a year for “advice” and they cover additional incidentals.

Correction: $7,200,000.  It seems to rise 20% every year.  :-\
Title: Re: EZPW - EZCorp
Post by: racemize on January 15, 2014, 05:46:59 AM
Cohen pays his company 6,000,000 a year for “advice” and they cover additional incidentals.

Correction: $7,200,000.  It seems to rise 20% every year.  :-\

Ah yes, right you are.  Looks like just a renewal for 2014.
Title: Re: EZPW - EZCorp
Post by: yadayada on January 15, 2014, 05:55:12 AM
Is the discount really big enough here. For shady management and risks of interest rates on those pawn loans being given a haircut? ABM and HAT for example are forced to charge a much lower interest rate.

That said, what about HAT?
https://www.google.com/finance?q=LON%3AHAT&ei=AJPWUqr7GISIwAOTIg

At least regulation is not much of  a risk here. And you dont have that shitty shareholder structure. And you basicly pay the same price :) .

It is actually cheaper if you think they can go back to 2012 levels, with a 4.75 PE.
Title: Re: EZPW - EZCorp
Post by: racemize on January 15, 2014, 06:27:58 AM
Is the discount really big enough here. For shady management and risks of interest rates on those pawn loans being given a haircut? ABM and HAT for example are forced to charge a much lower interest rate.

That said, what about HAT?
https://www.google.com/finance?q=LON%3AHAT&ei=AJPWUqr7GISIwAOTIg

At least regulation is not much of  a risk here. And you dont have that shitty shareholder structure. And you basicly pay the same price :) .

It is actually cheaper if you think they can go back to 2012 levels, with a 4.75 PE.

I haven't looked at HAT; I wonder if they have the same future growth?  How much exposure do they have to the gold scrapping business?  What I like about EZPW is that you can essentially right off the entirety of gold scrapping and still have a decently low P/E.  It is not very hard to imagine this company is worth 20+, and it has been valued at over 35 in the past.  Underlying core earnings have been growing at ~15% for quite a while now, so even if the valuation doesn't come soon, the growth should keep pushing the price up.  There'd have to be some major underlying issues for that not to happen, I think.  Or gold would have to continue to drop in value this year.  Additionally, with EZPW, they have a huge amount of consolidation left in the pawn business and quite a bit of growth in Mexico.  I think regulatory concerns are mostly focused on payday lending, and not necessarily pawn business rates.
Title: Re: EZPW - EZCorp
Post by: yadayada on January 15, 2014, 07:39:28 AM
Is the discount really big enough here. For shady management and risks of interest rates on those pawn loans being given a haircut? ABM and HAT for example are forced to charge a much lower interest rate.

That said, what about HAT?
https://www.google.com/finance?q=LON%3AHAT&ei=AJPWUqr7GISIwAOTIg

At least regulation is not much of  a risk here. And you dont have that shitty shareholder structure. And you basicly pay the same price :) .

It is actually cheaper if you think they can go back to 2012 levels, with a 4.75 PE.

I haven't looked at HAT; I wonder if they have the same future growth?  How much exposure do they have to the gold scrapping business?  What I like about EZPW is that you can essentially right off the entirety of gold scrapping and still have a decently low P/E.  It is not very hard to imagine this company is worth 20+, and it has been valued at over 35 in the past.  Underlying core earnings have been growing at ~15% for quite a while now, so even if the valuation doesn't come soon, the growth should keep pushing the price up.  There'd have to be some major underlying issues for that not to happen, I think.  Or gold would have to continue to drop in value this year.  Additionally, with EZPW, they have a huge amount of consolidation left in the pawn business and quite a bit of growth in Mexico.  I think regulatory concerns are mostly focused on payday lending, and not necessarily pawn business rates.
it is in their annual report somewhere. But I don't think they had alot of exposure to gold scrapping. gold scrapping and debt is what did ABM in.

I think they are at roughly the same 2012 valuations. EZcorp is cheaper at like 4.2x 2012 earnings, but they had to write down more gold scrapping. HAT is like 4.7.

They both grew like weed, mostly because of the consolidation of pawn shops. But with HAT you dont have much down side risk with regulation (because of the already lower interest rates they charge) and the shady share structure. I would rather own HAT to be honest.

To give some quick hat numbers
revenue past 5 years (million)

129
125
126
84
53

and net income was ~
13
18
17
13
7

So if they get net income back to 2011 levels, it really is dirt cheap. And lot's of growth. And if we have another recession, they should do nicely.

What really does me in tho is their management. At least they are more aligned with shareholders. Not exactly super thrilled about them, but better then Ezcorp. And still more then enough consolidation left.
Title: Re: EZPW - EZCorp
Post by: racemize on January 15, 2014, 07:52:07 AM
interesting.  Why is it so cheap?  I can understand why EZPW is, but given your description, it HATs cheapness doesn't appear to make sense.
Title: Re: EZPW - EZCorp
Post by: yadayada on January 15, 2014, 08:23:12 AM
Well same reasons I think, market thinks gold falling hurts them long term, and probably thinks that this is a recession business. If you take 2013 profit, it is trading roughly 10x earnings? They say they will start to use more electronics now as collateral.

Hmm also revenue is down to 50m from 63m in first half of 2013. . Don't own any stock, so havent really done taht much reading on them to be honest.
Title: Re: EZPW - EZCorp
Post by: cr6196 on January 15, 2014, 11:44:12 AM
interesting.  Why is it so cheap?  I can understand why EZPW is, but given your description, it HATs cheapness doesn't appear to make sense.

Another reason for HAT cheapness is that the gold purchasing business was/is very very soft. For basically no invested capital HAT and ABM turned in millions of profits (it was the most profitable business I have ever seen). Wisely, HAT's management/board realised this wouldn't last but this business is still going to go to zero (unless the gold price recovers). As it constituted a large part of historical profit then the company looks cheap. These earnings have pretty much no relevance for HAT in the future. As the post above says they are trading at around ~10x '13 earnings (if you extrapolate out the half year results).

I have looked at HAT a few times as they have been on value screens for the past few years even before the decline in gold price (+1 for Mr.Market it seems). I was interested enough to do research every time but ended up passing. Each time they just went on to disappoint, every store they added resulted in less and less revenue. Of course, management look pretty good now, compared to the likes of ABM. Despite this, I still can't get comfortable with this situation.

The starting point is working out the sustainable level of profit. If we first take out purchasing and scrapping, the company is operating at a slight loss. Scrapping isn't going to zero and the company is working on costs, figuring this in I am guessing ~£2m is probably somewhere around the long-term, sustainable number. One possible source of further upside is an improvement in jewellery, the company reported a big improvement this month which suggests the company can push performance here. However, one source of downside is increased competition. This sector is just so cutthroat...online pawnbrokers, online payday loan providers, and established competition in non-jewellery pawnbroking on the high street (Cash Converters is one major one listed in Australia, I think). The pledge book is down quite a lot and I suspect this will be more than the improvement in jewellery. Taking all this into account, as well as the financial position of the company, I don't think this company is cheap at all. I think the upside from jewellery is outweighed by the threat of competition elsewhere (for example, the company has no reputation with electronics) and I think the company probably still has far too many stores.

Sorry to have diverted the thread but this is an interesting situation.

(I also forgot to add that the regulatory threat isn't exactly zero either as the payday loan operators have really come under a great deal of scrutiny. The Opposition here have been making a lot of anti-business noise so something would mostly likely happen if they came to power next election, which will be early next year at the latest, which isn't unlikely).
Title: Re: EZPW - EZCorp
Post by: yadayada 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?
Title: Re: EZPW - EZCorp
Post by: racemize on January 17, 2014, 06:40:36 AM
kevin4u2
Title: Re: EZPW - EZCorp
Post by: no_free_lunch 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.
Title: Re: EZPW - EZCorp
Post by: no_free_lunch 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.
Title: Re: EZPW - EZCorp
Post by: racemize 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.
Title: Re: EZPW - EZCorp
Post by: no_free_lunch 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.
Title: Re: EZPW - EZCorp
Post by: racemize 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.
Title: Re: EZPW - EZCorp
Post by: yadayada 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.

Title: Re: EZPW - EZCorp
Post by: Rainforesthiker 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.
Title: Re: EZPW - EZCorp
Post by: racemize 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.
Title: Re: EZPW - EZCorp
Post by: yadayada on January 29, 2014, 07:10:01 AM
And thoughts on ABM? They tried to sell the company, but didnt get good offers. It's pretty much an option right now at 6 million. People with more knowledge on this know what is likely to happen next?
Title: Re: EZPW - EZCorp
Post by: racemize on January 29, 2014, 07:15:42 AM
And thoughts on ABM? They tried to sell the company, but didnt get good offers. It's pretty much an option right now at 6 million. People with more knowledge on this know what is likely to happen next?

I thought they had some announcement that said equity might have no value.  I figure it is just going to be written off, or maybe it is a situation for Oaktree.

Edit:  Here's a link:
http://www.theguardian.com/business/2014/jan/27/pawnbroker-albermarle-bond-buyer-share-plunge
Quote
The pawnbroker Albemarle & Bond has scrapped an attempt to sell itself and declared that its shares could now hold little value.
Title: Re: EZPW - EZCorp
Post by: kevin4u2 on February 03, 2014, 08:18:03 AM
CEO just bought some shares. 

http://www.conferencecalltranscripts.org/summary/?id=847362 (http://www.conferencecalltranscripts.org/summary/?id=847362)

Cheers!
Title: Re: EZPW - EZCorp
Post by: 50centdollars on February 06, 2014, 12:56:17 PM
CEO just bought some shares. 

http://www.conferencecalltranscripts.org/summary/?id=847362 (http://www.conferencecalltranscripts.org/summary/?id=847362)

Cheers!

CFO bought shares too.

http://tickerreport.com/banking-finance/124437/ezcorp-cfo-mark-edward-kuchenrither-buys-1000-shares-ezpw/
Title: Re: EZPW - EZCorp
Post by: Laxputs on February 10, 2014, 01:58:17 PM
Levi & Korsinsky, LLP is investigating EZCORP, Inc. (NasdaqGS: EZPW) in connection with possible claims of breaches of fiduciary duty by the board of directors of the Company.


http://www.prnewswire.com/news-releases/shareholder-alert-the-law-firm-of-levi--korsinsky-llp-launches-an-investigation-into-ezcorp-inc-regarding-possible-breaches-of-fiduciary-duty-244758671.html

Anybody have any insights?  Is this serious or minor?
Title: Re: EZPW - EZCorp
Post by: racemize on February 10, 2014, 02:04:58 PM
There's no real details, so hard to know anything.  For many of the things going on governance-wise, I would bet they are close to the line, legally.

As long as it isn't fraud on the profitability, I'm not too worried.
Title: Re: EZPW - EZCorp
Post by: Laxputs on February 11, 2014, 09:00:50 AM
I contacted the law firm:

We are prepared to challenge certain related-party transactions entered into by the Company. In particular, we determined that over the last three years the Company  paid approximately $18 million to Madison Park LLC for advisory services. Madison Park LLC is a business and financial advisory firm wholly owned by Phillip E. Cohen, the beneficial owner of all of the Company's Class B common stock and who has majority voting power in the Company. The purpose of our investigation is to determine whether these payments truly benefit the Company or whether they are designed to simply divert cash to Mr. Cohen.

If you own shares you can authorize the firm to proceed on your behalf.
Title: Re: EZPW - EZCorp
Post by: racemize on February 11, 2014, 09:36:39 AM
I contacted the law firm:

We are prepared to challenge certain related-party transactions entered into by the Company. In particular, we determined that over the last three years the Company  paid approximately $18 million to Madison Park LLC for advisory services. Madison Park LLC is a business and financial advisory firm wholly owned by Phillip E. Cohen, the beneficial owner of all of the Company's Class B common stock and who has majority voting power in the Company. The purpose of our investigation is to determine whether these payments truly benefit the Company or whether they are designed to simply divert cash to Mr. Cohen.

If you own shares you can authorize the firm to proceed on your behalf.

Sounds about right.  Probably a good lawsuit to bring.
Title: Re: EZPW - EZCorp
Post by: xtreeq on March 24, 2014, 09:17:43 AM
Albemarle & Bond shares suspended after banks withdraw support for turnaround plan
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10718565/Albemarle-and-Bond-shares-suspended-after-banks-withdraw-support-for-turnaround-plan.html
Title: Re: EZPW - EZCorp
Post by: yadayada on March 24, 2014, 10:20:32 AM
Albemarle & Bond shares suspended after banks withdraw support for turnaround plan
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10718565/Albemarle-and-Bond-shares-suspended-after-banks-withdraw-support-for-turnaround-plan.html

that was some serious mismanagement there, jesus. Paying out dividends when they shouldn't , and the stupid overexpansion into gold buying. They were just gambling with shareholder's money really. It was all so avoidable.
Title: Re: EZPW - EZCorp
Post by: racemize on March 24, 2014, 10:23:41 AM
yeah, pretty unbelievable. 

I'm surprised how much EZPW is dropping on the news, I'd already written this whole thing off, personally. 
Title: Re: EZPW - EZCorp
Post by: Rainforesthiker on March 28, 2014, 02:18:46 AM
Notes from the EZ Corp Shareholder Meeting

Proposals 1 and 2 both passed; increasing the amount of shares available from 55.5 million shares to  100 million shares.  EZ Corp only had around 65,000 shares or so in reserve (that were not publicly held or set aside for stock based compensation, etc.)

From the investor presentation:

There are over 13,000 pawn shops in the US, and about 10,000 of these are mom and pop stores.  Lots of room for consolidation.  EZ Corp adds value when it purchases a mom and pop pawn store by 1) changing the appearance of the store to be more like a nice retail store; 2)  labor and overhead efficiencies; 3) more uniform lending standards; 4) store within a store / selling additional products; 5) pawn loan growth; and 6) Jewelry VIP

The CEO likened the Jewelry VIP program like Best Buy trying to sell its customers an extended warranty on electronics.  But whereas Best Buy only sells a fraction of its customers on an extended warranty, EZ Corp sells its Jewelry VIP program to 50% of its customers.  Jewelry VIP program seems to be very lucrative.

EZ Corp is most heavily based in Texas due to its origins there.  CEO said Texas is one of the most difficult states from a regulatory standpoint.  Goal is to expand from around 1,400 current locations to 5,000, and to expand in all 50 states.

EZ Corp now does 10% of its sales online.  EZ Corp is now the largest seller of secondhand goods on Amazon.com.  EZ Corp currently has 50,000+ items available for sale online.  From a standing start 18 months ago of 0 sales online, it has now achieved 10%.  Online sales are a fast growing part of their business.  Other pawn businesses have generally no sales online.

UK – Albermarle & Bond (AMB) will most likely be written off.  EZ Corp is committed to their online lending business in the UK (CashGenie) 

There have been big regulatory changes in the UK; new regulations that essentially amount to 2,000 pages of regulations.  There is a big pawn store shakeout in the UK.  CEO said most mom and pops will not be able to deal with the new regulations, and even bigger chains are under pressure.  But demand for pawn and lending services is as high as ever in the UK.   My perception – seemed to almost be hinting that they might make another foray into the UK at this time of pessimism; but hard to say

CEO discussed “gold headwinds”; said that regardless the big pawn companies will “survive and thrive” as they have the size and scale.  Mom and pops will tend to suffer more.  Mom and pops will also suffer more from regulatory constraints

Question was asked about why the stock has performed poorly over the past year.  The CEO answered that it was due to investor's short term thinking; one time charges have hit earnings and investors lack patience.
Title: Re: EZPW - EZCorp
Post by: Laxputs on March 28, 2014, 09:22:52 AM
Great notes. Thanks very much for this.
Title: Re: EZPW - EZCorp
Post by: no_free_lunch on March 31, 2014, 06:09:56 PM
I like and own the stock but the increase in shares is concerning.  Why would they be thinking about issuing shares at a time where investors are applying "short term thinking".  Shouldn't they be buying back shares right now?   That is the issue with this one, while it's priced great I really do question the management.   If there was better management I would be making this a 20% position but as is I will just hold my shares.
Title: Re: EZPW - EZCorp
Post by: Rainforesthiker on April 01, 2014, 04:16:35 PM
I like and own the stock but the increase in shares is concerning.  Why would they be thinking about issuing shares at a time where investors are applying "short term thinking".  Shouldn't they be buying back shares right now?   That is the issue with this one, while it's priced great I really do question the management.   If there was better management I would be making this a 20% position but as is I will just hold my shares.

In a recent conference call management said that they were increasing the number of shares just for flexibility, to hold them in reserve and use for future stock options, and that (if I recall correctly) they had no intention of issuing them right now.  Also, apparently they can buy existing mom and pop pawn shops for 5-6x earnings, so that is a great use of their cash.  Having said that, this would be a great time for them to buy back stock.  Also, I agree with you, management is a serious concern.  Quality of management is also limiting the size of my position.

Having s
Title: Re: EZPW - EZCorp
Post by: no_free_lunch on May 21, 2014, 10:56:21 AM
Quote
After a thorough review and analysis of board structure and other corporate governance matters by its Governance Committee, the Board of Directors determined that an independent, non-executive Chairman of the Board was the best choice for the company at this stage of its growth and elected Mr. Love to the position. The board also decided to make the Governance Committee, consisting of independent directors, a permanent board committee. The company now has three permanent independent committees including Compensation and Audit.
..
The company also announced that it will terminate its advisory services arrangement with Madison Park, LLC. Madison Park, a business and financial advisory firm wholly owned by Phillip E. Cohen, the beneficial owner of all of the company's outstanding Class B Voting Common Stock, was engaged to provide advisory services related to EZCORP's business and long term strategic plan through September 2014. The company yesterday delivered a 30-day termination notice to Madison Park, as permitted by the terms of the agreement.

In reaching the decision to terminate the advisory services arrangement with Madison Park, both management and the Board considered the valuable advice and counsel Madison Park has provided, but concluded that, in light of the company's current strategic plan as well as its existing capabilities, the Madison Park services are no longer needed.

http://finance.yahoo.com/news/ezcorp-names-william-c-love-130000039.html

Stock up 7% on the news.  I just can't quite figure out what is happening.  Cohen owns all of the the voting shares and thus controls the company but has terminated an advisory agreement with his own firm?  It is like he is fighting with himself.   Presumably this is to increase investor confidence as many detractors have highlighted the agreement as part of the bear case.  It is a net positive but with him still owning the voting shares.. I don't know, I guess that will boost earnings if nothing else.  What are the boards thoughts on this?
Title: Re: EZPW - EZCorp
Post by: no_free_lunch on May 21, 2014, 11:00:58 AM
Just looked it up, the retainer on the agreement was $7.2M a year, so at 10x post-tax earnings this should add $50M to the market cap.
Title: Re: EZPW - EZCorp
Post by: snow pea on May 21, 2014, 11:05:05 AM
I contacted the law firm:

We are prepared to challenge certain related-party transactions entered into by the Company. In particular, we determined that over the last three years the Company  paid approximately $18 million to Madison Park LLC for advisory services. Madison Park LLC is a business and financial advisory firm wholly owned by Phillip E. Cohen, the beneficial owner of all of the Company's Class B common stock and who has majority voting power in the Company. The purpose of our investigation is to determine whether these payments truly benefit the Company or whether they are designed to simply divert cash to Mr. Cohen.

If you own shares you can authorize the firm to proceed on your behalf.

Particularly in view of the above, my initial reaction is: is this defensive posturing to try to avoid or minimize potential claims of breach of fiduciary duty?
Title: Re: EZPW - EZCorp
Post by: APG12 on May 21, 2014, 01:07:15 PM
I contacted the law firm:

We are prepared to challenge certain related-party transactions entered into by the Company. In particular, we determined that over the last three years the Company  paid approximately $18 million to Madison Park LLC for advisory services. Madison Park LLC is a business and financial advisory firm wholly owned by Phillip E. Cohen, the beneficial owner of all of the Company's Class B common stock and who has majority voting power in the Company. The purpose of our investigation is to determine whether these payments truly benefit the Company or whether they are designed to simply divert cash to Mr. Cohen.

If you own shares you can authorize the firm to proceed on your behalf.

Particularly in view of the above, my initial reaction is: is this defensive posturing to try to avoid or minimize potential claims of breach of fiduciary duty?

EZPW has had a valuation discount due to the corporate governance. Mr. Cohen just made $6 million on this announcement- essentially his entire annual fee- straight to his bottom line in one day.
Title: Re: EZPW - EZCorp
Post by: Rainforesthiker on May 21, 2014, 04:59:46 PM
My take on it:

Cohen / Madison Park never did any thing for its advisory fees; this was a way to pay Cohen a cash dividend that no other shareholders were allowed to receive.  Essentially dishonest, and very poor / dishonest corporate governance played along ("whose bread I eat, his song I sing").  Law firm called the corporate execs on this illicit scheme, shined a light on the cockroaches, and they stopped it.  Overall a good thing, but corporate governance remains as a serious flaw in this otherwise undervalued company.   
Title: Re: EZPW - EZCorp
Post by: APG12 on May 22, 2014, 06:51:50 AM
My take on it:

Cohen / Madison Park never did any thing for its advisory fees; this was a way to pay Cohen a cash dividend that no other shareholders were allowed to receive.

From what facts are you deriving this conclusion? From the 10-K:

"Prior to approval of the extension of the Madison Park agreement and pursuant to our Policy for Review and Evaluation of Related Party Transactions, the Audit Committee of our Board of Directors implemented measures designed to ensure that the extended engagement was considered, analyzed, negotiated and approved objectively. Those measures included the engagement of an independent financial advisory firm to counsel and advise the committee in the course of its consideration and evaluation of the Madison Park relationship and the proposed extension agreement and the receipt of a fairness opinion with respect to the consideration to be paid to Madison Park pursuant to the extension agreement."

I mean, I suspect that they weren't entirely earning their fee but to say that they were doing nothing and this was a way to collect a dividend would imply at the very least a blatant disregard of fiduciary responsibility by multiple parties- those on the audit committee and the independent financial advisory firm. I'm not saying it couldn't happen but come on. People get so dramatic about related party agreements.

Overall a good thing, but corporate governance remains as a serious flaw in this otherwise undervalued company.   

I guess I have a different take on this than most people. This specific situation aside, I'd rather have someone with a sizable stake in control of a company than a group of over-diversified shareholders who can't take the time to understand any of the issues going on. Just look at the way CBRL shareholders have consistently voted against their own interests because the stock price has done well.
Title: Re: EZPW - EZCorp
Post by: Rainforesthiker on May 22, 2014, 07:30:39 AM
I guess I have a different take on this than most people. This specific situation aside, I'd rather have someone with a sizable stake in control of a company than a group of over-diversified shareholders who can't take the time to understand any of the issues going on. Just look at the way CBRL shareholders have consistently voted against their own interests because the stock price has done well.


Are you familiar with the prior fraud litigation involving Cohen and his predecessor company - Friedman's ?
Here is a quote from the Wikipedia article on it:  "It is largely assumed that Friedman’s 2004 bankruptcy was brought about by internal corruption and lack of business ethics by top executives which led to investigations by the United States Department of Justice and the SEC, and a subsequent delisting from the NYSE."
http://en.wikipedia.org/wiki/Friedman's_Inc.

Here is a copy of the complaint in a related Friedman's lawsuit:
http://www.whafh.com/modules/case/docs/2748_cid_3_friedmans%20.pdf
A quote from the complaint:  "Both prior to and during the Class Period, Friedman's was one of the companies, along with its affiliates . . . that were entangled in a web of deceit and fraud, all of which was orchestrated by Defendant Phillip E. Cohen, the controlling shareholder . . ."

I really don't think this is the type of controlling shareholder you want.

Wrt "From what facts are you deriving this conclusion" let's just say I have some good scuttlebutt information.

Title: Re: EZPW - EZCorp
Post by: APG12 on May 22, 2014, 09:43:06 AM
Sure, I'm aware of his history and he's pretty slimy. I tried to distance my opinion on controlling shareholders in general from Mr. Cohen:

Quote
This specific situation aside

I agree with you that this isn't who we want running the joint. I just didn't understand how you were concluding that the whole arrangement was a sham but if you've got some good scuttlebutt more power to you!
Title: Re: EZPW - EZCorp
Post by: Laxputs on June 16, 2014, 06:46:29 PM
Today the co announced earnings guidance:

For the second half of fiscal year 2014, the company expects earnings per share in the range of $0.60 to $0.64 compared to a loss of $(0.57) for the second half last year. On a non-GAAP basis, these expected results represent second half earnings growth of more than 80%. This guidance is in line with the business outlook the company has previously provided. Please see the attached chart for a reconciliation between the company’s non-GAAP and GAAP results and expectations.

The company expects earnings per share in the range of $0.20 to $0.22 for the third quarter (ending June 30), and $0.40 to $0.42 for the fourth quarter (ending September 30). On a non-GAAP basis, the fourth quarter expected results compare to $0.09 last year, up over 300%. These results are expected to be driven by improving trends in the company's pawn and financial services loan metrics in the U.S. and Mexico, continued strong retail sales in the U.S., and improving overhead expense trends at the consolidated level.

The company estimates that its earnings per share outlook for the fourth quarter of fiscal 2014 may be reduced by $0.02 to $0.03 if it successfully completes the convertible debt offering that was announced simultaneously with this release.


http://app.quotemedia.com/data/downloadFiling?webmasterId=101533&ref=9657080&type=HTML&symbol=EZPW&companyName=EZCORP+Inc.&formType=8-K&dateFiled=2014-06-16

And with their cash convertible senior notes, they intend to buy back up to 1m of stock privately and pay down debt.

The Company intends to use:

a portion of the net proceeds from the offering to repurchase up to 1 million shares of its outstanding Class A common stock in privately negotiated transactions, which may be effected through one or more of the initial purchasers of the Convertible Notes or their respective affiliates, concurrently with the consummation of the offering;

approximately $115 million of the net proceeds from the offering to repay outstanding borrowings under the Company’s revolving credit facility;
Title: Re: EZPW - EZCorp
Post by: PatientCheetah on June 16, 2014, 07:04:09 PM
This is the problem with negative momentum stocks. Even when there is genuine good news, the pops almost always get sold down within a few days - too many bagholders want to get out. I owned some calls. I wish I have understood the magnitude of regulatory change.
Title: Re: EZPW - EZCorp
Post by: Laxputs on June 26, 2014, 09:43:43 AM
Really good summary article on EZPW's position. 

http://seekingalpha.com/article/2282953-ezcorp-reset-of-expectations-and-new-management-focus-provide-significant-upside
Title: Re: EZPW - EZCorp
Post by: racemize on June 26, 2014, 10:26:56 AM
Really good summary article on EZPW's position. 

http://seekingalpha.com/article/2282953-ezcorp-reset-of-expectations-and-new-management-focus-provide-significant-upside

Quite good article.  However, their estimates for 2014 have to be wrong, given management's guidance of 1.25.  I've left a comment to see what they say.
Title: Re: EZPW - EZCorp
Post by: Laxputs on July 18, 2014, 02:17:45 PM
http://www.marketwatch.com/story/voting-shareholder-of-ezcorp-announces-new-leadership-2014-07-18?reflink=MW_news_stmp
Title: Re: EZPW - EZCorp
Post by: racemize on July 18, 2014, 04:59:16 PM
http://www.marketwatch.com/story/voting-shareholder-of-ezcorp-announces-new-leadership-2014-07-18?reflink=MW_news_stmp

well, that is interesting.
Title: Re: EZPW - EZCorp
Post by: kevin4u2 on July 18, 2014, 05:41:20 PM
No kidding. I understand Cohen is a character but according to his wiki page he's a Harvard MBA. Can't be that stupid.

http://www.marketwatch.com/story/voting-shareholder-of-ezcorp-announces-new-leadership-2014-07-18?reflink=MW_news_stmp

well, that is interesting.
Title: Re: EZPW - EZCorp
Post by: PatientCheetah on July 18, 2014, 07:26:53 PM
Can someone explain the implication?
Title: Re: EZPW - EZCorp
Post by: 50centdollars on July 21, 2014, 11:01:30 AM
down 14% on friday's news. Anyone buying?
Title: Re: EZPW - EZCorp
Post by: PatientCheetah on July 21, 2014, 11:26:51 AM
I think people are extrapolating that the next quarter's result will be horrible because the CEO is pushed out. I would wait for the stock to stabilize a little bit before taking the first position. If it continues to sell off tomorrow, it will break its current resistant level, the next support level is down at $7-8 range. The largest current shareholder is Fidelity. Fidelity is known for indiscriminate sellings from my experience.
Title: Re: EZPW - EZCorp
Post by: racemize on July 21, 2014, 11:34:27 AM
We bought some more.  Some scuttlebutt from a previous executive indicated that the CEO wasn't that good and should be removed.  He thought the firing had more to do with that than anything else.  Somewhat of a speculation, however.
Title: Re: EZPW - EZCorp
Post by: Rainforesthiker on July 21, 2014, 03:50:58 PM
Bought some more today at around $9.65.  I had initially thought the departure of the CEO and board members was tied to the discontinuance of the exorbitant Madison Park consulting arrangement; but scuttlebutt indicates that the CEO departure was really likely for performance issues.  The price seems very cheap.  I think the stock price will be quite a bit higher in the next year or two; but of course it is almost impossible to tell what the stock price will do over the next few days or weeks.
Title: Re: EZPW - EZCorp
Post by: Laxputs on July 29, 2014, 01:27:17 PM
3rd Quarter results:

http://online.wsj.com/article/PR-CO-20140729-912832.html
Title: Re: EZPW - EZCorp
Post by: PatientCheetah on July 29, 2014, 02:25:58 PM
3rd Quarter results:

http://online.wsj.com/article/PR-CO-20140729-912832.html

Nothing to get excited, guidance is down again. I am remaining on the sideline.
Title: Re: EZPW - EZCorp
Post by: Rainforesthiker on September 17, 2014, 06:03:03 PM
http://biz.yahoo.com/e/140915/ezpw8-k.html (http://biz.yahoo.com/e/140915/ezpw8-k.html)

My scuttlebutt - these staff reductions are designed to help reduce unnecessary layers of middle management; so the staff reductions are a good thing.
Title: Re: EZPW - EZCorp
Post by: DanielGMask on September 18, 2014, 06:12:04 PM
I don't think it represents a good thing. Successful investing is more than finding an attractive price, actually is about a lot more. Here is why EZPW is no longer among my holdings: http://m.seekingalpha.com/article/2190503
Title: Re: EZPW - EZCorp
Post by: yadayada on September 19, 2014, 04:44:19 AM
I think this stock deserves a serious regulatory risk discount, and also a discount because management are careless capital allocators. Who cares if it makes more in the next 10 years then waht you pay for it now if they just destroy value by overexpanding constantly?
Title: Re: EZPW - EZCorp
Post by: Laxputs on October 08, 2014, 10:05:16 AM
So glad I got out of this shitty company led by shitty management.
Title: Re: EZPW - EZCorp
Post by: Homestead31 on October 08, 2014, 12:33:53 PM
if you're referring to the latest news and subsequent sell off, i view both as positive for patient long term share holders.

i don't have the release in front of me, but i believe they are taking a $105M writedown of their US and UK online businesses.... only $10M of that is cash cost, and other restructuring moves are expected to yield $9M in annual savings.

as for the comment on management, i'm not going to say that anyone here is an angel b/c its a shady business for sure, but the new executive chairman grimshaw seems to be a legit executive  (former CEO of Bank of Queensland - an Aussie listed bank) not just some slimy pawn broker guy.  i view the news on the write off that he is kitchen sinking everything he can to dissociate himself from the old management's efforts to get into online and retail at the expense of crushing margins and getting away from the traditional business. 

again i don't have my notes in front of me but if memory serves the online  businesses they scrapped (which they just bought in 2012 & 2013 & of course makes me think the old management was a bunch of fools) were cash flow negative (UK) and a very small contributor (single digit millions in the US), so if exiting these 2 small businesses results in a GAAP hit of 105M but only a cash hit of $10M and they can widen margins back to where tehy were a few years ago, i think this is a very attractive investment (i bought stock on the dip).  it is certainly hard to imagine things getting any WORSE here.
Title: Re: EZPW - EZCorp
Post by: Rainforesthiker on October 08, 2014, 01:35:47 PM
I completely agree with LWC above.  I view the announcement as very positive - they are getting back to their core business, and getting rid of non-core items that are a cash drain.  Once they get past these one time charges, their normalized earnings should hopefully put them back to $15 - $20 per share within a few years.  The company / management has some warts for sure, but this seems to be at or near the point of maximum pessimism.
Title: Re: EZPW - EZCorp
Post by: yadayada on October 08, 2014, 03:33:02 PM
yeah but that is only 50-100% upside from here. And your not discounting earnings with regulatory risk and bad capital allocation. Aren't original crooks still owning controlling shares?
Title: Re: EZPW - EZCorp
Post by: Homestead31 on October 09, 2014, 08:21:27 AM
"regulatory risk" is an interesting thing... in my view, in this case while regulatory risk is high, it doesn't translate directly to investment risk... rather it translates to investment uncertainty, which is part of the reason why the shares are cheap.

for example, according to yahoo finance (too lazy to do my own work at the moment) EZPW trades at a trailing EV/EBITDA of 6.4x and close comp FCFS trades at 11.8X.

25% of EZPW's business is related to consumer loan, while only 7% of FCFS's business is consumer loan.

I think it is very unlikely that this business goes away entirely because while the business may be reprehensible, the fact remains that these people need access to capital and short of going to EZPW etc there only option would be the black market.  which is worse, usurious interest rates from a public company that can be held accountable, or usurious interest rates from a loan shark that breaks your knee caps when you don't pay?

...but lets imagine that it does go away entirely.  yes there would be short term selling, but a huge cloud of uncertainty would be lifted and the multiple would re-rate closer to the multiple that FCFS gets.

I think what is most likely to happen is that new management streamlines operations, the government curtails the consumer loan business in some way (but doesn't kill it completely) and then the shares re-rate.  under this scenario i can see upside far greater than 100%.

as for management, there is still a controlling share holder that appears to be real real slimy, and the market will likely discount that for some time... however, like anything else, the market will forget if and when earnings start to really ramp up as margins widen.  i am definitely less than comfortable with this controlling shareholder, but as mentioned previously i do take some comfort in Grimshaw's presence... he was CEO of a real bank and by all accounts has a strong reputation.  i don't think he would agree to join this group and put his reputation at risk unless he felt confident that past shenanigans were in the rear-view mirror.  that being said i control for this uncertainty through position sizing.
Title: Re: EZPW - EZCorp
Post by: ItsAValueTrap on October 09, 2014, 10:44:18 AM
I think it is very unlikely that this business goes away entirely because while the business may be reprehensible, the fact remains that these people need access to capital and short of going to EZPW etc there only option would be the black market.  which is worse, usurious interest rates from a public company that can be held accountable, or usurious interest rates from a loan shark that breaks your knee caps when you don't pay?

I don't think people actually go to loan sharks.

- You can go to a pawn shop.
- You can borrow against your car, if you have one.
- You can borrow from FFF (friends, family, fools)
- You can wait for your paycheque
- You can decide not to pay for certain bills.

And honestly, many of these people do not need "access to capital".  Some people truly do have emergencies such as needing to fix their car so they can get to work.  Other people borrow money right before Christmas to buy gifts.

If the government banned payday loans, I think society would be better off.  Pawn shops, while usurious, seem to be fine for society.  The same might apply for credit cards, which are also usurious.
Title: Re: EZPW - EZCorp
Post by: yadayada on October 09, 2014, 10:50:48 AM
The rates asked in the UK are much lower though. So there is a route in between, they will put a lower cap on rates, and firms like EZcorp will make less. So if you take all those risks, I rather buy this if upside would be 150-200%. Not sure you get so well rewarded with 50-100% upside. Your basicly hoping the market will be stupid enough to not give this a management/regulatory discount. So your buying from a dumbass and selling to a dumbass. I rather just buy from a dumbass.
Title: Re: EZPW - EZCorp
Post by: ItsAValueTrap on October 09, 2014, 10:58:13 AM
If they're allowed to sell insurance and to charge fees, there are ways around interest rate caps.
Title: Re: EZPW - EZCorp
Post by: kevin4u2 on October 09, 2014, 11:37:05 AM
I would love to see a more comprehensive business valuation. You are relying on information above that is very conservative. I think fair value is 3.5 x the current quote. Very fragmented market, so lots of growth opportunities. Time will tell but in the mean time I think the market is wrong. Huge MOS. Keep in mind that they are still profitable, and operating performance is being masked by stupid mistakes from the past. Just like BAC.

The rates asked in the UK are much lower though. So there is a route in between, they will put a lower cap on rates, and firms like EZcorp will make less. So if you take all those risks, I rather buy this if upside would be 150-200%. Not sure you get so well rewarded with 50-100% upside. Your basicly hoping the market will be stupid enough to not give this a management/regulatory discount. So your buying from a dumbass and selling to a dumbass. I rather just buy from a dumbass.
Title: Re: EZPW - EZCorp
Post by: kevin4u2 on October 21, 2014, 08:38:53 PM
No thoughts on the 8+% bump the other day on the pitch by a NY hedge fund at the robin hood conference the other day? Anyone attend?
Title: Re: EZPW - EZCorp
Post by: racemize on October 22, 2014, 06:04:20 AM
No thoughts on the 8+% bump the other day on the pitch by a NY hedge fund at the robin hood conference the other day? Anyone attend?

I didn't know about that; I'd be very interested in notes/presentation if they are around.
Title: Re: EZPW - EZCorp
Post by: peter1234 on October 22, 2014, 06:46:01 AM
No thoughts on the 8+% bump the other day on the pitch by a NY hedge fund at the robin hood conference the other day? Anyone attend?

I didn't know about that; I'd be very interested in notes/presentation if they are around.

Not sure if you can find notes. Here is who talked about it:
Anna Nikolayevsky, founder and chief investment officer of Axel Capital Management LLC, also speaking at the event, recommended investors buy shares of Ezcorp Inc., whose products include pawn and payday loans.
Title: Re: EZPW - EZCorp
Post by: Rainforesthiker on October 27, 2014, 01:48:30 PM
EZPW Earnings Update
http://finance.yahoo.com/news/ezcorp-provides-earnings-schedules-earnings-200100285.html

throwing all of the write downs and reserve increases into the current quarter. 
Title: Re: EZPW - EZCorp
Post by: Homestead31 on February 20, 2015, 12:20:54 PM

[/quote]

Anna Nikolayevsky, founder and chief investment officer of Axel Capital Management LLC, also speaking at the event, recommended investors buy shares of Ezcorp Inc., whose products include pawn and payday loans.
[/quote]

Looks like EZPW is now Axel's largest stock position (half the book is in SPY, which I assume means they are a new fund slowly building their book rather than jumping in and risking big tracking risk right off the bat)
Title: Re: EZPW - EZCorp
Post by: stahleyp on February 20, 2015, 05:13:58 PM


Looks like EZPW is now Axel's largest stock position (half the book is in SPY, which I assume means they are a new fund slowly building their book rather than jumping in and risking big tracking risk right off the bat)

Hmmm...I don't know about that. I'm seeing the fund has been opened since 2009.
Title: Re: EZPW - EZCorp
Post by: Homestead31 on February 23, 2015, 01:42:46 PM
interesting - i didn't do any research - i just assumed that with half the book in SPY they were slowly entering the market.

hard to think that investors want to pay management fees for ETF exposure. 
Title: Re: EZPW - EZCorp
Post by: Homestead31 on May 05, 2015, 10:13:41 AM
anyone still paying attention here?  the other day they announced they were delaying their earnings b/c they were looking into some potential issues with a mexican sub.  never feels good to see a delayed earnings, but the mexican sub is a small piece of the business, and the new CEO, who is a very accomplished guy having formerly run a bank in australia,  has been here less than a year, meaning he's probably still rooting out some of the crap that the old management team let slide through the cracks.

the history of corporate governance here is troubling, but given new management and the items they've been calling out and addressing, i think there is reason to believe the future will be better than the past.  looking at margins and inventory turns vs. comps, there is a lot of low hanging fruit here to improve profitability, and the company has a long runway to reinvest in their own growth through de novos and M&A as this is a very fragmented industry.

the recent regulatory news is out which should remove a hangover, and even if the rules are worse than feared, the 10,000 mom and pops out there are less equipped to handle them than the major players are, so the major players like EZPW will take share going forward.

at a time when i don't feel great about the wider market and there are signs that the economy is slowing, i think EZPW is a company that will BENEFIT if the economy really cracks.  in that sense, it is a natural hedge.
Title: Re: EZPW - EZCorp
Post by: racemize on May 05, 2015, 10:28:56 AM
Still paying attention.  It is a small piece and the press release also indicated that that sub is growing at double digit pace.  I think (hope) it is an over reaction, but we shall see. 

In any event, I don't think it has any relevance on the long-term thesis.  I'm very interested in what the 3rd quarter 3-year plan/guidance will indicate. 
Title: Re: EZPW - EZCorp
Post by: kevin4u2 on May 05, 2015, 10:41:59 AM
I echo the same sentiment.

I held my nose and bought some more on the big down day.

Still paying attention.  It is a small piece and the press release also indicated that that sub is growing at double digit pace.  I think (hope) it is an over reaction, but we shall see. 

In any event, I don't think it has any relevance on the long-term thesis.  I'm very interested in what the 3rd quarter 3-year plan/guidance will indicate.
Title: Re: EZPW - EZCorp
Post by: Homestead31 on May 05, 2015, 02:30:06 PM
yes - new management has been vocal that they thought the business went to far toward retail under the new CEO and they were looking to get back to basics.

i have to ask - did the old CEO shed any light on the battle in the board room that led to his ouster?  gotta respect a guy who had the balls to cut out the $6M self-dealing payments that the sponsor was funneling to himself...  he must have known he would get fired and done it anyway.. maybe b/c he changed his dismissal bonus a few weeks before.
Title: Re: EZPW - EZCorp
Post by: Homestead31 on May 27, 2015, 05:38:35 PM
EZPW bringing back the old old CEO as President - North American Pawn.

Mr. Rotunda previously served as EZCORP's Chief Executive Officer for 10 years (August 2000 to November 2010).  Under his leadership, the company grew from a few hundred stores operating in 11 states to more than 1,000 owned and operated locations in the U.S., Mexico and Canada, and its market capitalization grew from $17 million to over $1 billion.  During Mr. Rotunda's tenure, EZCORP's growth and performance were recognized with the company's inclusion on Forbes list of "200 Best Small companies" in 2006, Business Weekly's "100 Hot Growth Companies" in 2007, the Association for Corporate Growth's "2010 Outstanding Corporate Growth Award" for Central Texas, and FORTUNE Magazine's 2010 list of "100 Fastest Growing Companies."

Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on August 01, 2015, 12:11:06 PM
Hey all:

Anybody else been following this?

Looks like they are shutting down the payday loan and title loan divisions.  Cutting out a lot of stuff and getting back to basics.

If I am not mistaken, a lot of management is going also.

Looks like a move in the right direction.

Any thoughts?
Title: Re: EZPW - EZCorp
Post by: Rainforesthiker on August 01, 2015, 03:22:40 PM
I have been following the situation quite closely, and I recently added significantly to my position when the stock was just above $6 per share.  I have not been posting about it, as there seemed to be very little interest on the Board re this stock in the past.  They have a good pawn business - second largest number (493) of pawn stores in the US; and good cash flow from these stores.  Yes they are completely getting out of all types of payday and auto title lending - they are shutting down their lending business entirely effective last week.

I really like what I heard from new management in their recent restructuring announcement; new mangers seem to have a good reputation overall and seem motivated and smart enough to do the right things - focus on their core strength in pawn, get totally out of payday lending, and otherwise reduce costs by simplifying and unifying their back office.  This is exactly what I would have done.  Getting out of payday lending makes a ton of sense and allows them to focus on a good pawn business with much less regulatory issues.  Going forward, I really like their posture in focusing on pawn, cost reduction and a rollup strategy.  Overall, I feel that the pawn business will generate good, growing cash flow.  Downsides remaining are some small amount of regulatory risk and still a bad controlling shareholder.  The upside of regulatory risk is that the small mom-and-pop players will have trouble dealing with this and will likely need to sell out to the big players like EZCorp.

In looking at their past issues, most of their wounds were self-inflicted:  buying a gold scrapping business in the UK at the height of a cyclical rise in gold prices; branching out into online lending which really does not work;  doing payday lending - a dying business due to regulatory issues; poor oversight of Grupo Finmart loans, leading to accounting restatements and numerous lawsuits;  and a controlling shareholder with an egregious (now terminated) consulting agreement and numerous management changes.  The controlling shareholder is not going away, but it seems with his Madison Park arrangement terminated now his interests are aligned with the stockholders - he only makes money with a rising stock price. 

I think the stock is still quite cheap on a number of metrics (even though it went up about 12% on Friday after their announcement). For example, if you look at recent pawn store acquisitions, In general a pawn store is selling for around $1 to $1.4 million per store (pawn stores are often priced as a multiple of the outstanding loan amount).  They own 493 stores in the US, which should put the value of the company at $500 - $700 million (not even counting Grupo Finmart or their Cash Converters ownership);  but yet their market cap, even after the 12% run-up, is just $388 million.  Also, they are selling around 6 - 7 times free cash flow.  And their cash flow has been somewhat depressed due to falling gold prices.  Now that gold prices have stabilized somewhat, they should do better.

Whenever I invest I like to look for a clear rationale as to WHY the market is mispricing the stock - why is the normally wise crowd not getting this right?  Here there has been quite a bet of negative sentiment over the past few years, culminating in a restatement of accounting figures (horrors!) and management changes that understandably caused much uncertainty.  This uncertainty has caused the fairly large price drop - which in actuality is a gift to the value investor.  IMO the accounting issues are relatively minor in the scheme of things.  This type of uncertainty, where the underlying business is sound, is usually what produces the best bargains.
Title: Re: EZPW - EZCorp
Post by: Schwab711 on August 01, 2015, 04:57:54 PM
I know precious metals represent the majority of their txns but do you worry about the significant deflation in most products over the last 1-2 decades? The cost of new (and thus, the value of used) knives, electronics, and tools have been declining fairly quickly, especially relative to historical trends (the most commonly pawned items that aren't gold/silver).

What is the largest risk facing EZPW in your view? Should an investor be worried about the potential for a continuation of the slow declines in gold/silver? Will they need to write-off their gold/silver inventory if it drops below weighted-average costs?
Title: Re: EZPW - EZCorp
Post by: racemize on August 01, 2015, 05:26:06 PM
I know precious metals represent the majority of their txns but do you worry about the significant deflation in most products over the last 1-2 decades? The cost of new (and thus, the value of used) knives, electronics, and tools have been declining fairly quickly, especially relative to historical trends (the most commonly pawned items that aren't gold/silver).

What is the largest risk facing EZPW in your view? Should an investor be worried about the potential for a continuation of the slow declines in gold/silver? Will they need to write-off their gold/silver inventory if it drops below weighted-average costs?

Inventory turn-over should typically clear out what they hold pretty fast.  Thus, deflation of most products over long time-periods doesn't mean too much, only over short periods.  The same reasoning applies to the gold inventory--declining values are gotten rid of fairly quickly, and they make good margins in a steady pricing environment.  However, the knock-on effect is that the declining gold prices reduce the amount of collateral around for pawning, and therefore reduces the loan amounts.  So while the margin might hold, the revenue and profit declines with the collateral declines. 
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on August 01, 2015, 05:26:49 PM
I know precious metals represent the majority of their txns but do you worry about the significant deflation in most products over the last 1-2 decades? The cost of new (and thus, the value of used) knives, electronics, and tools have been declining fairly quickly, especially relative to historical trends (the most commonly pawned items that aren't gold/silver).

What is the largest risk facing EZPW in your view? Should an investor be worried about the potential for a continuation of the slow declines in gold/silver? Will they need to write-off their gold/silver inventory if it drops below weighted-average costs?

From my limited understanding of Pawn Shops, 85% of items are paid off in full...People don't want to lose their items for the most part.

As for the drop in value of gold & silver...that is certainly a concern or issue.  HOWEVER, remember they are not loaning 100% of the value.  EZPW might loan 60% or 70% of it's retail value (less maybe?).  There is a built in margin of safety there.  I also would think that a couple of days after the pawn shop gets title to the item, they should be looking to sell/liquidate it.  They shouldn't be sitting on this stuff for months or years. 

I don't think that is the problem....

What could go wrong?

Very intense competition!  I lived in area of TX that must have had 1 pawn shop for every 7,500 residents!  There were some strip malls that had a pawn shop & title loan & pay day lender in it!

Texas has a very different culture than the rest of the USA.  Pawn shops operate as a "bank" for those that are "un-banked".  I suspect the number of "un-banked" will continue to grow in the future.

When I was a small child growing up in Detroit, there were several pawn shops...but this was for a city of 1.5 million.  Maybe 10 shops?  Now there might 30 shops!  Lots of room for expansion in the midwest.

There are also operational problems...Pawn shops (chains) pay their lower level employees not much more than minimum wage.  How are you going to get good workers for that wage?  A good pawn shop employee has to be honest, dependable, able to quickly do basic math, personable and be able to show some empathy for their customers.  How are you going to get that for $9/hour?

Ebay could also be a competitor...BUT you still need to work to list an item, and there is no gaurantee that you will make a sale.  So if you need cash in a 24 hr. period, a pawn shop might be your best bet.

Another threat is that if the economy significantly improves, the demand for them will go down.

Overall, I think a pawnshop is the best of the "dirty" high interest loan originators.

A good business to be sure.
Title: Re: EZPW - EZCorp
Post by: Rainforesthiker on August 01, 2015, 06:06:45 PM
I know precious metals represent the majority of their txns but do you worry about the significant deflation in most products over the last 1-2 decades? The cost of new (and thus, the value of used) knives, electronics, and tools have been declining fairly quickly, especially relative to historical trends (the most commonly pawned items that aren't gold/silver).

What is the largest risk facing EZPW in your view? Should an investor be worried about the potential for a continuation of the slow declines in gold/silver? Will they need to write-off their gold/silver inventory if it drops below weighted-average costs?

With the decline in gold prices, the mix of items pawn shops take in has transitioned a bit to less gold/silver and more non-jewelry items such as electronics.  This has hurt their margins a bit for sure as these items depreciate faster than jewelry, but they can certainly ameliorate this a bit by changing their loan ratios or doing more conservative appraisals.  Thus I think they should be able to manage this, and when gold stabilizes and begins increasing this trend should reverse. 

The biggest risks facing EZPW in my view are:

1) The control shareholder doing things that hurt the company or are not in the shareholder's interest, such as attempting to get paid a large consulting fee or making management changes for the wrong reasons. 
2)  The CFPB taking a negative regulatory stance against the pawn industry.  This is a possibility, but I think the CFPB is mainly concerned with payday lending, as payday lending tends to put people in a cycle of debt, whereas pawn does not as the person can always simply walk away and only lose his collateral.
3)  gold prices continue to decline.  Certainly gold prices can't decline forever.  They have already seen a significant drop, and the nature of the cycle would tend to indicate that gold will stabilize and most likely rise again in the near future.

The other thing to mention, which I no longer consider a risk, is that management would keep doing stupid things with their capital; but the new management has IMO made the right call to simplify their business and focus on what they know and do best, which is pawn.  The plan management has put forward involves reducing cost structure and focusing on using their capital for roll-ups, which what they should be doing with their cash.
Title: Re: EZPW - EZCorp
Post by: ritrading on August 03, 2015, 11:24:44 AM
I have been following the situation quite closely, and I recently added significantly to my position when the stock was just above $6 per share.

Rainforesthiker - don't mean to single you out, but I don't want to see you lose your money.

I've researched EZPW about a year ago, and the situation doesn't look like it has changed. Phillip E Cohen owns all of the Class B Voting common shares. If you check the related party transaction sections, he forces EZPW to employ "consulting services" from entities which are owned by himself. The stock does not pay a dividend. This is his way of pulling all the profits out of the company and into his own pockets without sharing with other investors. Since he has all the voting power, he has historically voted out board members which try to stop him from doing this. This is a company that no one other than Cohen should be in. It is completely designed to enrich him and him only.

Last I checked, EZPW was at no risk of collapsing. They are a real business and does make money. However, don't expect to get any of the profits. It wouldn't be wise to short it either. Since the fees that Cohen pulls out are just expenses on the income statement, he can effectively control the net income by taking less next year.

http://www.renaissanceinvestor.com/2014/08/case-study-ezpw-beautifully-deceptive.html
Title: Re: EZPW - EZCorp
Post by: krazeenyc on August 03, 2015, 11:48:03 AM
I have been following the situation quite closely, and I recently added significantly to my position when the stock was just above $6 per share.

Rainforesthiker - don't mean to single you out, but I don't want to see you lose your money.

I've researched EZPW about a year ago, and the situation doesn't look like it has changed. Phillip E Cohen owns all of the Class B Voting common shares. If you check the related party transaction sections, he forces EZPW to employ "consulting services" from entities which are owned by himself. The stock does not pay a dividend. This is his way of pulling all the profits out of the company and into his own pockets without sharing with other investors. Since he has all the voting power, he has historically voted out board members which try to stop him from doing this. This is a company that no one other than Cohen should be in. It is completely designed to enrich him and him only.

Last I checked, EZPW was at no risk of collapsing. They are a real business and does make money. However, don't expect to get any of the profits. It wouldn't be wise to short it either. Since the fees that Cohen pulls out are just expenses on the income statement, he can effectively control the net income by taking less next year.

http://www.renaissanceinvestor.com/2014/08/case-study-ezpw-beautifully-deceptive.html
FYI the consulting agreement was eliminated.
Title: Re: EZPW - EZCorp
Post by: ritrading on August 03, 2015, 11:58:56 AM
FYI the consulting agreement was eliminated.

Hmm I found some eliminated agreements in the more recent 10-Q's. But hasn't this happened before? I'm having some trouble remembering my research, but hasn't prior directors tried to end these agreements and then Cohen just votes them out? Once they're gone, Cohen can re-establish the agreements or find a new board that will.
Title: Re: EZPW - EZCorp
Post by: Rainforesthiker on August 16, 2015, 01:13:28 PM
I have been following the situation quite closely, and I recently added significantly to my position when the stock was just above $6 per share.

Rainforesthiker - don't mean to single you out, but I don't want to see you lose your money.

I've researched EZPW about a year ago, and the situation doesn't look like it has changed. Phillip E Cohen owns all of the Class B Voting common shares. If you check the related party transaction sections, he forces EZPW to employ "consulting services" from entities which are owned by himself. The stock does not pay a dividend. This is his way of pulling all the profits out of the company and into his own pockets without sharing with other investors. Since he has all the voting power, he has historically voted out board members which try to stop him from doing this. This is a company that no one other than Cohen should be in. It is completely designed to enrich him and him only.

Last I checked, EZPW was at no risk of collapsing. They are a real business and does make money. However, don't expect to get any of the profits. It wouldn't be wise to short it either. Since the fees that Cohen pulls out are just expenses on the income statement, he can effectively control the net income by taking less next year.

http://www.renaissanceinvestor.com/2014/08/case-study-ezpw-beautifully-deceptive.html
FYI the consulting agreement was eliminated.

I certainly don't mind being singled out.   If someone thinks I am doing something dumb I would rather know about it as soon as possible.  When investing, it is best to check your ego at the door.

I am well aware of the arguments you raise - some are still valid and some are out of date.

The Madison Park consulting agreement was terminated a good while ago.  A shareholder class action lawsuit was brought against the company for the purpose of ending this agreement.  Given that, I seriously doubt that the consulting agreement can or will be revived - there is just too much risk.  There is a new consulting agreement with a pal of Cohen's, but it is very very small, and I believe new management addressed this very satisfactorily in the recent call.  Also note that EZPW has traded at a much higher share price with the Madison Park agreement in place (as high as $30), so I don't think that agreement in and of itself is a barrier to an improved stock price.  I do understand the risks and to some extent am holding my nose wrt Cohen and his management oversight.  But the extremely low share price (driven mostly by a large amount of uncertainty related to their Mexico accounting / management issues) is quite attractive.  Even without a dividend, I believe that they will steadily increase their intrinsic value, and hence their ability to pay a dividend in the future.  Also, without the consulting agreement, I believe Cohen's interest is aligned with other shareholders - we should both only gain with a rising stock price.  Further, the new management has an incentive structure such that a large part of their incentive compensation kicks in when the stock price exceeds $15/share, and thus I think the new management's incentives are in the right place.  The "ugliness" you rightfully identify in the management is a two edged sword - on one hand it makes the company less desirable as an investment (when you ignore price), but on the other hand it creates the opportunity for a huge price drop that is far less than my estimation of intrinsic value.  We'll see what happens.
Title: Re: EZPW - EZCorp
Post by: JayGatsby on November 09, 2015, 01:17:33 PM
Financials were due today, no?
Title: Re: EZPW - EZCorp
Post by: racemize on November 09, 2015, 03:17:45 PM
They are up now, through Q3.
Title: Re: EZPW - EZCorp
Post by: JayGatsby on November 09, 2015, 07:31:24 PM
Seems like everything held together pretty well. Good cash flow. Looks like something related to the restatment increased the non-recourse grupo debt balances. I guess they'll hold a call when they publish the next quarter? The real test will be what they choose to do with the cash. I remember on the last call someone asked if they'd buy back shares considering the current price and they were clearly more interested in growing the  business than the share price.
Title: Re: EZPW - EZCorp
Post by: JayGatsby on November 14, 2015, 02:18:01 PM
Here's how I'm looking at this. Figured I'd lay it out for anyone not following the situation or for anyone following the situation to tell me where my analysis is wrong.

9 Mos June Earnings from US operations before tax, D&A and impairment: $89.6M (Note that this includes the non-pawn business that they're exiting)
9 Mos Corporate Earnings before tax, D&A and restructing (including interest expense): $44.2M
9 Mos Net earnings excluding Latam: $45.4
Annualized (divided by 3/4): $60.5 (June quarter was below this. Unclear how much of that was due to the consumer loan biz that they're exiting)

Total Recourse Debt (ie, ex Latam): $215M
Market Cap: $294.5
Less: Cash: $114.4M (as of June 30)
Less: Equity interest in Cash Converters: $90.4M
= Net Enterprise Value of US operations: $304.7

So that puts the US operations at ~5x pre-tax earnings. You're also buying their pawn loan book and inventory (~$200M net of current liabilities) and you're also buying the Mexico operation (Grupo Finmart). It doesn't seem to generate much profit, but the Company just increased their stake in the subsidiary by 18% at a cost of $29M. This implies an equity value of $161M for the operation.

Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on December 12, 2015, 06:52:23 AM
Hey all:

Couple of developments here....

A). Management is of such high quality & of course there is tightness in today's labor market...SO MANAGEMENT BONUSES HAD TO GET PAID!!!!!!!   WTF?  is the BOD a gathering of simpletons?  These people are lucky to have their jobs at all!  Example #782,934 of management capture of corporations.

B). To add insult to injury, they now can't get their financials released on time and need a few more weeks!  This isn't rocket surgery!  Did the due date sneak up on them?  Did they get confused?  What the hell is going on?

Of course, the stock price has collapsed further.

Looks like I may have been wrong on this.  I have little faith in management at this point.

Any thoughts?
Title: Re: EZPW - EZCorp
Post by: Spekulatius on December 13, 2015, 03:31:32 PM
I think yo name red the question yourself. Sell the stock, if not for any other reason than harvesting a tax loss. This is not a business where you can overlook management's lack of  integrity.
Title: Re: EZPW - EZCorp
Post by: racemize on December 13, 2015, 05:14:55 PM
Hey all:

Couple of developments here....

A). Management is of such high quality & of course there is tightness in today's labor market...SO MANAGEMENT BONUSES HAD TO GET PAID!!!!!!!   WTF?  is the BOD a gathering of simpletons?  These people are lucky to have their jobs at all!  Example #782,934 of management capture of corporations.

Yes, shitty, but not unexpected.  This one makes more sense than the one they did a couple of years ago in my opinion.  The new management had to come in and do a lot of house cleaning, so the poor results aren't the result of their actions.  That being said, this is of course egregious and I completely disagree with the payouts at this particular time. 

I think there is a distinction to be made between the controlling shareholder structure (which is awful) and management, which has changed quite a bit in the last year or so.  We've been hearing good things about the new management from a variety of sources.

Quote
B). To add insult to injury, they now can't get their financials released on time and need a few more weeks!  This isn't rocket surgery!  Did the due date sneak up on them?  Did they get confused?  What the hell is going on?

It's only a 15 day delay, so I don't view this as material really.  I think their explanation that the restatement really killed them is likely true, even if disappointing.

Quote
Of course, the stock price has collapsed further.

Looks like I may have been wrong on this.  I have little faith in management at this point.

Any thoughts?

It continues to be ugly.  But I continue to believe that there is value here.  They are almost pure play pawn and even pawn businesses run in an average way makes money.  To me, this feels similar to BAC when it dropped down to $5.  Once the stink clears, the business should be worth quite a bit more, I think pretty easily $12+. 
Title: Re: EZPW - EZCorp
Post by: kevin4u2 on December 13, 2015, 05:40:13 PM

It continues to be ugly.  But I continue to believe that there is value here.  They are almost pure play pawn and even pawn businesses run in an average way makes money.  To me, this feels similar to BAC when it dropped down to $5.  Once the stink clears, the business should be worth quite a bit more, I think pretty easily $12+.

I agree.  At the current price this one represents easy value.  The company has and continue to make money.  I don't doubt there is growing frustration out there, so the point of maximum pessimism may be right around the corner.  The current price is 3.6x consensus EPS for next year. 
Title: Re: EZPW - EZCorp
Post by: ritrading on December 13, 2015, 10:08:31 PM
It continues to be ugly.  But I continue to believe that there is value here.  They are almost pure play pawn and even pawn businesses run in an average way makes money.  To me, this feels similar to BAC when it dropped down to $5.  Once the stink clears, the business should be worth quite a bit more, I think pretty easily $12+.

Mentioned this a long time ago in this thread, but EZPW is a trap. There is 0 value in this company. The founder owns all the voting shares, and has in the past acted in ways to enhance his own wealth at the expense of shareholders. Example - founder forces EZPW to purchase "consulting" services from him. With no dividends or repurchases being made, these "consulting" services is the only way that profits leave the company into the hands of the owners. He does it in a way where he is the only one who will ever see any profit from EZPW. He has a history of firing management who challenges him.

To reiterate, this company is worth zero in the hands of anyone other than the founder. He is the only one who can extract value from it. If you're holding the A shares, do yourself a favor and take the loss.
Title: Re: EZPW - EZCorp
Post by: racemize on December 14, 2015, 06:10:50 AM
It continues to be ugly.  But I continue to believe that there is value here.  They are almost pure play pawn and even pawn businesses run in an average way makes money.  To me, this feels similar to BAC when it dropped down to $5.  Once the stink clears, the business should be worth quite a bit more, I think pretty easily $12+.

Mentioned this a long time ago in this thread, but EZPW is a trap. There is 0 value in this company. The founder owns all the voting shares, and has in the past acted in ways to enhance his own wealth at the expense of shareholders. Example - founder forces EZPW to purchase "consulting" services from him. With no dividends or repurchases being made, these "consulting" services is the only way that profits leave the company into the hands of the owners. He does it in a way where he is the only one who will ever see any profit from EZPW. He has a history of firing management who challenges him.

To reiterate, this company is worth zero in the hands of anyone other than the founder. He is the only one who can extract value from it. If you're holding the A shares, do yourself a favor and take the loss.

Your example is no longer valid.  Moreover, when that agreement was in place, there were more earnings than the consulting agreement and the shares were priced much higher than "$0".  This isn't Fannie and Freddie where there is an earnings sweep.

Following your own logic, how would buybacks help create value?  If there is no value in the A shares, then buying them back would be entirely useless, no?  Do you also believe that the nonvoting google shares are worthless?

If you've already said this, then why continue to repeat it?
Title: Re: EZPW - EZCorp
Post by: Homestead31 on December 14, 2015, 06:14:18 AM
It continues to be ugly.  But I continue to believe that there is value here.  They are almost pure play pawn and even pawn businesses run in an average way makes money.  To me, this feels similar to BAC when it dropped down to $5.  Once the stink clears, the business should be worth quite a bit more, I think pretty easily $12+.

Mentioned this a long time ago in this thread, but EZPW is a trap. There is 0 value in this company. The founder owns all the voting shares, and has in the past acted in ways to enhance his own wealth at the expense of shareholders. Example - founder forces EZPW to purchase "consulting" services from him. With no dividends or repurchases being made, these "consulting" services is the only way that profits leave the company into the hands of the owners. He does it in a way where he is the only one who will ever see any profit from EZPW. He has a history of firing management who challenges him.

To reiterate, this company is worth zero in the hands of anyone other than the founder. He is the only one who can extract value from it. If you're holding the A shares, do yourself a favor and take the loss.

when shares were priced quite a bit higher, incentives for Cohen were to milk the company.

now that shares are in the gutter, Cohen's incentives are clearly aligned with outside shareholders.  He will make many times more money by getting the stock price up than he will be milking the company, and there is no way he can reinstate the consulting agreemeent with madison park.

there is alot to hate here.  these are not squeaky clean people, and this is not a squeaky clean industry.

it is however an extremely defensive industry that should do BETTER if the economy gets WORSE, and it is a consolidating industry where scale matters.  additionally, the CEO is an accomplished guy - not some shlep who will just roll over for Cohen, and his incentives are clear too.  he needs to get the stock price up to really get paid.

it is also super cheap. given the extremely defensive nature of the business, all that needs to happen for this to be double or triple is for seemingly self interest management to act in their own self interest and focus on share price.  that will happen when they get past the current mess, and as time passes.
Title: Re: EZPW - EZCorp
Post by: ritrading on December 14, 2015, 10:08:13 AM
Your example is no longer valid.  Moreover, when that agreement was in place, there were more earnings than the consulting agreement and the shares were priced much higher than "$0".  This isn't Fannie and Freddie where there is an earnings sweep.

Following your own logic, how would buybacks help create value?  If there is no value in the A shares, then buying them back would be entirely useless, no?  Do you also believe that the nonvoting google shares are worthless?

If you've already said this, then why continue to repeat it?

My example was not meant to describe the current situation of EZPW. The example was meant to highlight that the person in control has a history of self enrichment at the expense of shareholders. The board of directors, which he is not part of, has a fiduciary duty to the shareholders. Philip Cohen has repeatedly removed directors who perform that responsibility. While Cohen is not currently not (visibly) taking from shareholders, the probability that he will attempt something similar in the future is very high. Whatever you think you can make off this investment, the fact is that there's someone ready to skim off the top and your capital gains should be (and should have been) much higher than what you can realize.

Google clearly states in their prospectus that profit is not their primary objective. They make it very clear that they will pursue policies and investments that may be detrimental to shareholders. Google shareholders are invited along for the ride to change the world, not to make money. Directors are not fired for siding in the interests of shareholders. Google, and most other companies which do not pay dividends or do share repurchases, are not equal comparisons to EZPW.

I'm repeating my argument as a warning to new position holders who may not have had the opportunity to properly evaluate their investment.

Homestead31 mentions that at  that Cohen's current interest might be temporarily aligned with shareholders at such a depressed price level, and that EZPW does better in economic downs. This is irrelevant. While the points may be more true than an inflated price level, nobody is disputing EZPW's viability as a business. EZPW will remain a going concern for the foreseeable future. That does not make it a good investment. Because of Cohen's history of self enrichment, and the likelihood of his future attempts, the probabilities are stacked against the investor. This is an investment with a low probability of outperforming the index.
Title: Re: EZPW - EZCorp
Post by: JayGatsby on December 14, 2015, 08:08:03 PM
The highest ROI for Cohen would be convert his shares and create a single class structure. I'm not saying that he necessarily will, but there's obviously a valuation discount assigned to the structure he put in place.

Were the dollar figures for the bonuses totally crazy? Seems like they're performing based on the strategy they laid out so deserve at least some bonus. My guess is the recent rent-a-center guy has a contract of some sort. 

Would be nice if they'd sell cash converters and buy back shares. Seems like cash converters gets lost in the shuffle and is value at $0 from the markets.
Title: Re: EZPW - EZCorp
Post by: JayGatsby on December 27, 2015, 08:24:31 PM
The recent K has me rethinking the valuation. The big difference seems to be how they allocate costs among divisions. US Pawn did $95M of EBITDA. Corporate admin is $73M. Previously it looks like they allocated some additional corporate costs to LatAm?  At least today it looks like Grupo Finmart is worth $0, which means the valuation is pretty much dependent on US pawn minus streamlined corporate. 

Grupo Finmart doesn't make sense to me. Even if chargeoffs were 0% it would still be basically a breakeven business charging an interest spread of ~75%. The admin expenses seem high for what they're doing. I also didn't realize that their recent equity purchase was because the shares were put to them.
Title: Re: EZPW - EZCorp
Post by: racemize on December 28, 2015, 05:45:40 AM
The recent K has me rethinking the valuation. The big difference seems to be how they allocate costs among divisions. US Pawn did $95M of EBITDA. Corporate admin is $73M. Previously it looks like they allocated some additional corporate costs to LatAm?  At least today it looks like Grupo Finmart is worth $0, which means the valuation is pretty much dependent on US pawn minus streamlined corporate. 

Grupo Finmart doesn't make sense to me. Even if chargeoffs were 0% it would still be basically a breakeven business charging an interest spread of ~75%. The admin expenses seem high for what they're doing. I also didn't realize that their recent equity purchase was because the shares were put to them.

I agree that the Grupo numbers don't make too much sense, though I suspect there was quite a bit of extra costs thrown in of late and there could be even a cookie jar of bad debt reserves to be conservative.  In general, the numbers in this K are hard to parse to get any sense of current adjusted real-rate numbers, particularly since OCF included discontinued operations.  Also, they were still clearing out old inventory (I think that's getting close to done) and there were so many other charges and restructurings. 

Several years ago, core operations were up at $1.60+ per share, excluding gold.  Or, you can apply a mid-high single digit net margin and get $1 per share in earnings (low for their historical run rate, and FCFS is expected to be at 10-11%), or you could use a more normalized ROE value, or you could apply a value per store valuation, or you could use a 10x EBIT on US Pawn and retire the debt, or you could use TBVPS.  Any of these give you values over current price, but the valuation pretty much has to be based on normalized earnings. 

This whole thing feels very similar to BofA of 2011 to me--there's a good business in there and it should make good money, but it is ugly and hard to get any real numbers right now.
Title: Re: EZPW - EZCorp
Post by: JayGatsby on December 28, 2015, 07:39:02 AM
Several years ago, core operations were up at $1.60+ per share, excluding gold.  Or, you can apply a mid-high single digit net margin and get $1 per share in earnings (low for their historical run rate, and FCFS is expected to be at 10-11%), or you could use a more normalized ROE value, or you could apply a value per store valuation, or you could use a 10x EBIT on US Pawn and retire the debt, or you could use TBVPS.  Any of these give you values over current price, but the valuation pretty much has to be based on normalized earnings. 

This whole thing feels very similar to BofA of 2011 to me--there's a good business in there and it should make good money, but it is ugly and hard to get any real numbers right now.
Didn't earnings a few years ago include a sizable volume of the financial services businesses that was shut down due to regulatory issues? The comp I've been looking at is CSH, which did $110M of EBITDA with twice as many pawn shops.
Title: Re: EZPW - EZCorp
Post by: racemize on December 28, 2015, 09:20:48 AM
Yes, the financial services part needs to be cut out from the $1.6 core earnings.

On your comparison, I'm not too sure about your store count, but maybe I'm getting the wrong numbers. 

From valueline, CSH: "Operated 847 company-owned lending locations, primarily under the banners Cash America Pawn, SuperPawn, and Cash America Payday Advance, as of 3/15"

For EZPW: "As of March 31, had 512 pawn locations in the U.S., primarily under the EZPAWN and Value Pawn & Jewelry banners, and 241 Empeno Facil (Easy Pawn) stores in Mexico."

and for FCFS: "As of December 31, 2014, the company had 1,005 locations in 13 U.S. states and 29 states in Mexico"

There is something very strange about CSH's book value and metrics, compared to EZPW and FCFS.  e.g., historical ROE of CSH is largely <10%, compared to high teens for EZPW and FCFS.  Similarly, net margins are all less than 9%, compared to historical rates of >10% for EZPW and FCFS. 

Looking at CSH, from their investor relations website:
Pawn: Over 500 in the United States
Cash Advance: Over 200

So they still have a fair amount of check cashing and payday advance.  I think FCFS is the better comparison at this point.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on December 28, 2015, 06:22:49 PM
The recent K has me rethinking the valuation. The big difference seems to be how they allocate costs among divisions. US Pawn did $95M of EBITDA. Corporate admin is $73M. Previously it looks like they allocated some additional corporate costs to LatAm?  At least today it looks like Grupo Finmart is worth $0, which means the valuation is pretty much dependent on US pawn minus streamlined corporate. 

Grupo Finmart doesn't make sense to me. Even if chargeoffs were 0% it would still be basically a breakeven business charging an interest spread of ~75%. The admin expenses seem high for what they're doing. I also didn't realize that their recent equity purchase was because the shares were put to them.

I going to guess that some corporate overhead is going to be reduced as they have let go a certain percentage of corporate workers.  I think I remember reading it was 98 workers.  Thus, going forward, corporate admin should be less than $73MM.

According to the Austin paper, that would save the company $34MM per year after 3 years?

please see:

http://www.bizjournals.com/austin/news/2015/08/04/report-ezcorp-to-cut-almost-100-austin-jobs-after.html

How the hell could the Mexican operations not be producing any earnings?

The company needs to focus on US pawn operations.  Run them right, run them for cash flow & earnings.  Expand opportunistically buying out Mom & Pop operators and very small chains.  Organically grow where possible.  INITIATE A DIVIDEND!  Pay out a decent amount of earnings.  NO MORE HAREBRAINED expansion and wasting of capital.

That is a recipe for a growing share price...
Title: Re: EZPW - EZCorp
Post by: JayGatsby on December 28, 2015, 07:35:09 PM
On your comparison, I'm not too sure about your store count, but maybe I'm getting the wrong numbers. 
You're right. Here's what I'm coming up with:

CSH:
803 US pawn stores
Pawn loan revenue: $367M (9 mos); $489M annualized
EBITDA: $105M ($110M minus $5M of "other revenue", which i assume is franchise fees. This includes some legacy consumer finance)

FCFS:
283 US Pawn; 657 Mexico
Revenue US: $248M 9 Mos; $330M annualized
Revenue Mexico: $265M 9 Mos; $363 annualized
EBITDA: $140M

EZPW
522 US Pawn; 232 Mexico
Revenue US: $344
Revenue Mexico: $50

FCFS focuses on "large format" stores in the US. The CSH US locations seem to perform in-line with the EZPW locations on a revenue basis ($609k of net revenue per CSH store vs $659k at EZPW). If we use the $105M of EBITDA that would imply $68M of US pawn EBITDA at EZPW. If you start with the $95M of pre-corp US EBITDA at EZPW, subtract the $73M of corporate, add back $34M of annual cost savings from DTE's Austin article and add back the $4M of Grupo audit fees, that gets you to the low $60s. This is in a year with falling gold prices, so maybe in a stable year they'd do a bit better.

Something seems fundamentally different between FCFS's Mexico stores and EZPW's. At present EZPW's stores don't seem to really contribute  any enterprise value. Some were shut down this year and SSS were positive at the remainder, so maybe the remaining footprint is cash positive. Grupo Finmart also appears to be worthless today.

So if we factor that into our valuation:
Cash convertible notes:$230M
Plus: Market Cap: $288
Minus: Cash: $47M ($59M total minus $12M at the op segments)
Minus: Cash Converters Stake: -$59M
=Net Enterprise value: $412M
Divided by $65M of US EBITDA = 6.3x

Not a terrible value but not a large discount either, especially considering they're nonvoting shares in a company with a terrible history of capital allocation and infrequent conference calls. Upsides are if they can figure out Mexico Pawn or Grupo Finmart. Downsides are if they can't be as efficient with their US pawn as expected, or they put more money into Mexico.

Let me know if that analysis seems reasonable.
Title: Re: EZPW - EZCorp
Post by: racemize on December 29, 2015, 03:32:01 PM
Ok, so I think there are a few things to add:

1) EZPW is also dealing with a lot of old inventory that it has been selling out of, which is depressing its margins, and has a pretty big impact on its profitability, in both US and Mexico pawn.

2) As I mentioned in the last post, if you look at EZPW and FCFS historically, they have very similar profit profiles and ROE.  I'm using valueline, but you can see it in this article too:

http://seekingalpha.com/article/468951-ezcorp-vs-first-cash-financial

CSH's profit profile is very much lower than either of those companies (e.g., <10% net margins versus ~12% for FCFS/EZPW).

3) CSH has also been undergoing a dramatic restructuring and management is similarly focused on efficiency and cost cutting.  Given its poor margins compared to historical EZPW and FCFS, that makes sense.  Thus, I think using CSH's profitability per store as a measure of what EZPW will make should at the least be used as a very conservative estimate given that a) CSH is historically not as profitable; and b) it is undergoing a similar process as EZPW to increase its own profitability. 

4) CSH still has payday lending/check cashing going on in their stores, which I think is 7-10% of revenue.

Regarding the "large format", FCFS is the only one who talks about it.  I gather that it means not jewelry only, e.g., offering a variety of merchandise.  It isn't clear to me that EZPW isn't mostly large format under that definition?  At least the ones I have been in are more than jewelry, and they certainly have been talking about merchandise that isn't jewelry quite a bit.

Also, the revenue you have listed for EZPW seems low.  The last 10k has revenues of 800 million or so, and you can subtract out the 70 of Grupo's to get $720 million.  Valueline similarly has estimates of $700 million for 2016.  As I mentioned in the last post, applying a low historical net profit margin to that revenue (e.g., 7% as Valueline does), gets you $1+ EPS in the future.

Finally, I think it is worth noting that all three of these companies can acquire pawn stores for as long as they want, at decent prices (my understanding from industry experts is that EZPW can typically acquire at 7x earnings).  So there's room to reinvest the earnings in acquiring new stores, which should be pretty decent growth over time.
Title: Re: EZPW - EZCorp
Post by: JayGatsby on December 29, 2015, 07:51:16 PM
Also, the revenue you have listed for EZPW seems low.  The last 10k has revenues of 800 million or so, and you can subtract out the 70 of Grupo's to get $720 million.  Valueline similarly has estimates of $700 million for 2016.  As I mentioned in the last post, applying a low historical net profit margin to that revenue (e.g., 7% as Valueline does), gets you $1+ EPS in the future.
I was using US pawn net revenue. Valueline might be using gross revenue. I think the net is consistent across the companies. I think the new K warrants a close read. The presentation of the figures in it leaves me with a much more negative impression than I had before. I also previously thought $100M of EBITDA from their pawn footprint would be pretty feasible, but now am pretty skeptical.

Barrier to entry here is also pretty low. The EZPawn near me is just a little box with a nicer mom/pop pawn shop across the street.
Title: Re: EZPW - EZCorp
Post by: racemize on December 30, 2015, 07:54:45 AM
Also, the revenue you have listed for EZPW seems low.  The last 10k has revenues of 800 million or so, and you can subtract out the 70 of Grupo's to get $720 million.  Valueline similarly has estimates of $700 million for 2016.  As I mentioned in the last post, applying a low historical net profit margin to that revenue (e.g., 7% as Valueline does), gets you $1+ EPS in the future.
I was using US pawn net revenue. Valueline might be using gross revenue. I think the net is consistent across the companies. I think the new K warrants a close read. The presentation of the figures in it leaves me with a much more negative impression than I had before. I also previously thought $100M of EBITDA from their pawn footprint would be pretty feasible, but now am pretty skeptical.

Barrier to entry here is also pretty low. The EZPawn near me is just a little box with a nicer mom/pop pawn shop across the street.

Jay, I think I've pointed out a lot of reasons why CSH does not appear to be a great comparison, why EZPW's numbers are lower than they should be, and how you can get pretty strong returns using historically low net profit ratios and adjusted revenues, but you keep coming back without any discussion of those.  I'm finding it somewhat frustrating.  However, I am going back and rereading a lot while we're talking, so thank you for the discussion.

Anyhow, using net revenues is going to be a double whammy for EZPW right now, because they have been getting rid of old inventory, which is depressing the gross margin, as I mentioned in previous posts.  So you are using EZPW's net revenues as if they are comparable to CSH, then using CSH's profitability which is lower than the other two from the net revenue, all at the same time while CSH is also trying to improve its own costs and is also depressed on its own/restructuring.  So, really that's a triple whammy.  And then you still get a number that you are describing as close to fair value, without Mexican pawn having any value at all.

As to barrier to entry--of course there's no barrier to entry, it's a simple business that is majority "mom&pop" stores.  These three guys can just go around buying up pawn stores indefinitely and the pawn business makes good returns.  I know a pawn operator that does this for a living--he buys them at 3-4x earnings from independent operators, and then cleans up the business and operates it better.  If they are already operating well, then people like EZPW buy them for 7x earnings instead.  Anyway, US Pawn is a mature industry, so there's always been competition and the margins are fine when operated well.

Here's some additional info.  Instead of using the Austin Business article, they have their own release here:
http://globenewswire.com/news-release/2015/07/29/756133/0/en/EZCORP-Announces-New-Strategy-Structure-and-Business-Focus.html

Here's the presentation:
http://investors.ezcorp.com/download/EZCORP+Investor+Presentation+7-29-15+FINAL.pdf

Here's the phone call on the strategic update:
http://seekingalpha.com/article/3386485-ezcorps-ezpw-ceo-stuart-grimshaw-on-q3-2015-results-earnings-call-transcript?part=single

Also, here's quotes from the the last quarterly call on gross margins:
Quote
You can see that year-over-year net revenues were down $13.5 million. This was driven primarily from lower merchandise sales gross margin due to inventory velocity disposition initiatives that I will talk about within each pawn business unit and that had approximate impact of $4.3 million; scrimp [ph] gross profit reduction of $3.8 million driven primarily from lower volumes and year-over-year price compression; lower CSO net revenue driven by the impact of Houston and El Paso ordinances; and the higher bad debt experienced primarily in Texas, impacting by $2.6 million.

Quote
Our team focused on improving the velocity of the inventory disposition and drove [ph] actions during this quarter to address inventory balances in order to take advantage of the seasonal sales opportunity afforded by the holidays.

We dealt with the disposition challenge in two ways. First, we reviewed and adjusted our price discounting cadence by product category in order to properly price items for sale as they aged. We also reviewed our loan-to-value tables to ensure than an acceptable gross margin is available if a collateral item drops into our inventory. Secondly, we focused on properly pricing, displaying and emphasizing the sale of aged items.

The effort resulted in improved movement of aged items held for sale, lower sales revenue and lower gross margins due to higher volume with an adverse mix of sales. We expect this sales revenue and gross margin pressure to continue for the next several quarters until we reach an inventory age mix that is acceptable to us.

Quote
Vincent Caintic - Macquarie
Hi, good afternoon, guys. Question on the turnover and the margins. So, the turnover rate improving was pretty -- very good this quarter. And was wondering what your sense is of how much further you can go and what's the timeframe to get there. And then also, conversely, on the margins, is it right to think about it that the margins are compressed while you're I guess improving turnover, and then maybe revert [ph] back once you've stabilized?

Mark Kuchenrither - President and CEO
Hi, Vincent. Thanks for the question, and thanks for joining the call. We've got about another three quarters or so of work to do to balance our inventory at levels that we will feel are acceptable, and based on our historical -- taken a historical view of what our rates will be in moving out the inventory.

The effect of the change in mix of the volume of the aged inventory is that we have lower margin recognition on that lower inventory sales. As that inventory, as the mix reduces, over time we should see margins lift over time and call back to what we think is an acceptable margin, because our -- as our new inventory sells, because we have the right discount cadence in place and we have the right loan-to-value tables in place, with customer grading and dynamic pricing in place, we should be getting good margins on selling our new inventory items.

So, over time, as the old inventory -- older inventory reduces in total volume and mix, we should see a better gross margins over time. And then once we get through this next three quarters or so of working through this, then we should, moving forward, have acceptable margins.


On Mexico:
Quote
Empeno Facil, our pawn business in Mexico, exceeded our expectations this quarter. Our pawn loan book was up 15% year over year and 22% on a constant currency basis. Pawn service charges were up 12% and 19% year over year on a constant currency basis. These are all same-store numbers. Merchandise sales were strong at 17% and 25% on a constant currency basis.

The same focus was applied to improving the inventory velocity at Empeno. The team did a great job of dispositioning aged items, primarily cell phones, during the quarter. The effort resulted in improved movement of aged items held for sale, lower sales revenue, and lower gross margins, due to higher volume with an adverse mix of sales. We expect the sales revenue and gross margin pressure to continue for the next several quarters, until we reach an inventory aged mix that's acceptable to us.

Quote
Customer satisfaction is strong. And now with Joe Rotunda back leading it, we have great experience at the top to actually continue to drive or increase capabilities through our stores. Mexican pawn has been a good story, as many of you are aware. There's strong underlying demand in that market. And there's been a move into a large store format, which we are well positioned to benefit from. Customer satisfaction is also very strong in that market. And we're improving our metrics through all of our stores.

On restructuring:
Quote
Mark Ashby - Chief Financial Officer
Thanks, Stuart. If you turn to slide 2014, this gives you an indication of the cost savings that we expect in overhead annualized, within three years from now. The first two [indiscernible] $12 million saving from closing the USF business and the $9 million in net D&A savings, clearly you would expect those to be a bit more front ended than in three years down the track. The USFS closure, and just to emphasize, we're really just talking about direct overhead of that business. Obviously, there's other operating costs in stores and in regional management which we'll close as a result of the closure of the business. But, the direct overhead itself, we expect that to reduce by $12 million very rapidly. The $2 million in D&A savings, that is after allowing for the capital investment that was referred to two slides previous. So, we're anticipating a $15 million CapEx spend. Obviously, a lot of that is IT when you look at the componentry, so the depreciation schedule is relatively short life cycle.

So, we will – we expect to see a net improvement over the five years – sorry, three years of $9 million per annum. But, again, that is front ended. The $13 million comes primarily from the previous slide where we look at the way we're running the business maybe to a centralized structure creates opportunities where there's a lot of duplication in the current environment, the opportunity to review all expenses that the Company incurs by introducing a procurement function within the business which has not been there in the past, and to be able to tender a lot of the major services that we have, and also by putting – and to reemphasize what Stuart said – the financial disciplines back in the business to ensure where we're spending money is fruitful and a good investment. So, we expect over the three year period that we're saving $13 million per annum.

If I turn to page 15, there's some costs that we're going to need to bear in the short term and also probably over the first quarter or so of the next fiscal year. If we look at the components, we're looking at write-downs and write-offs charges of around $75 million to $85 million. And obviously, that will firm up over the last quarter as we get a better understanding of the success of some of the negotiations where we exit stores and the like.

The pre-tax cash impact we estimate at somewhere between $20 million to $25 million of that. And the post-tax cash impact is a lot lower at $5 million to $10 million. And obviously that comes in over a period of time as we can claim the tax deductions on some of these costs. The post-tax cash impact is lower because of the benefits of some of the write-offs that we're putting into place which are non-cash, and we get a tax cash benefit from it.

Just for your reference, on pages 16 and 17 is the 8-K. There's a little bit more detail of how that's split across USFS and the rest of the business.

Quote
Bob Ramsey - FBR Capital Markets
Okay. And when you think about the costs that come out by closing the stores, are you all then putting the full allocation of the real estate occupancy expense in your store within a stores onto the pawn shop and not sort of looking at cost allocation accounting? Because I guess you don't save anything in the pawn shop rent if you close the store within a store.

Mark Ashby - Chief Financial Officer
The pawn shops will assume the space in the store within a store. So, that'll be fully costed into the pawn. And then we're going through the stores outside of that. We'll be going through each individual lease looking at what that actually means and whether there is a long tail or a short tail that we can utilize.

On pawn business:
Quote
I mean, the pawn business is an interesting one because there really are only three listed companies in there. And there're close to 12,000 close to pawn stores, of which the three listed companies account for around 1,500 stores. So, it's a very fragmented industry which in itself is an interesting business to play in. We believe that obviously when you have scale in this business, you have capital benefit as well as I suppose pricing benefit, due to the doors that you do have in certain areas. We like the fact that it's a customer business and it's a local business. Most of the pawn stores capture within three miles of the store, and the store manager really is the hero and the one who makes it. So, the dynamics are really good for us, and we do like it. In terms of the gold, obviously what it does do is it's impacted on the scrapping as well as the loan values that we'd principally have. So, you'll see some natural shifts in the income line as a result of the shift in the gold price. Having said that, it's just as – I've seen reports pricing gold down a long way further and I've seen some reports have it stabilizing. We know gold has traditionally been a cyclical business, so what you're seeing is a lot of focus on us as how do we look at our general merchandise in terms of pawn lending. And you'll see that some of our transactional volumes will start to improve as general merchandise becomes a larger part of the business. But, we still think that pawn is a very good business to be in. And gold is just a part and parcel of existing in this business.
Title: Re: EZPW - EZCorp
Post by: fareastwarriors on January 04, 2016, 07:57:17 AM
As requested, please see attached sell-side reports I found.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on January 08, 2016, 06:49:59 AM
Hey all:

Looks like the imbeciles running this company have let the earnings collapse.

Turns out there really isn't much of a business left.

Stock is collapsing.

Any thoughts?
Title: Re: EZPW - EZCorp
Post by: ritrading on January 08, 2016, 07:04:08 AM
I can't find anything on Edgar or their investor relations site. Has something been officially released?
Title: Re: EZPW - EZCorp
Post by: JayGatsby on January 08, 2016, 08:12:22 AM
The presentation for the conference callcall came out earlier this week or last week.  Headlines were something like:
US EBITDA: 105
Corp: -65 (although it seemed like this number was in the process of being reduced)
Title: Re: EZPW - EZCorp
Post by: DanielGMask on January 11, 2016, 06:55:57 PM
The incentives of the biggest/controlling shareholder are not aligned with the incentives of investors, which is a great formula for disaster. I'm completely disappointed with this company and I won't touch it even though it seems really cheap. I used to love the business model and the company, but I was very wrong in my assumptions! I closed my position at a big loss a long time ago (http://seekingalpha.com/article/2190503-ezcorp-no-longer-among-my-holdings). Don't ever invest in a company where the incentives are not aligned with you!
Title: Re: EZPW - EZCorp
Post by: racemize on April 07, 2016, 09:13:00 AM
I realize that the only people interested in posting in this thread are apparently those that are the most bearish, but there are quite a few of us in this name.  A couple of updates to those that haven't been discussing it on the sidelines:

Some notes from the recent Annual Meeting (not mine, on the Yahoo boards):
Quote
ezpwjunky • 22 hours ago
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EZPW annual meeting this morning
I just got out of the EZPW annual meeting...I was impressed with the management team (Rotunda gave the overview of the US and Mexican pawn and it was very positive...as we've seen in the last couple of quarters). Grimshaw showed his financial chops by being able to answer any question thrown at him...and there were a fair amount of tough questions. 

The CEO and his team seem to be on the ball and they are focused on making the company very successful ...the fly in the ointment is still Grupo Finmart but they say there are still on track (per previous disclosures) to have a strategic transaction in calendar Q3...I continue to believe that the likely divestiture will not be harmful to the company or its balance sheet.

I was really happy to hear the company say that it will publish the new financial metrics for the management team's new restricted stock grants...I can only #$%$ume that the EBITDA numbers and the debt targets will be set high enough to drive the stock price up dramatically, if they are hit by the target date of Sept 2018. (I like the fact that both the P&L and balance sheet are covered by EBITDA and debt targets). I'm guessing we'll see the target metrics at the next 10Q which will be out in a month or so. 

As in the last conference call the company continues to stress the strong growth in US and Mexican pawn...Rotunda is, per normal, kicking #$%$ and taking names. I think the stock will do the same as soon as the Grupo Finmart overhang is gone.

Btw...the company did not push back when an investor pointed out that the EZPW competitors (e.g. FCFS and CSH) trade at a 500% to 800% premium over the EZPW market cap based upon US and Mexican pawn metrics. 

I'm buying more! Less
Sentiment: Strong Buy
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apemn88 • 17 hours ago
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Thanks Junky.

Did they add additional color to the GF issues? I am still unclear why the bottom appeared to fall out of that business so rapidly after taking on ~94% ownership.
1 Reply to apemn88
ezpwjunky • 17 hours ago
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apemn88, I know from reading the SEC docs that a put option forced them into buying that final part of GF to take them to 94%.

As for the meeting this am, they admitted that GF was what was holding them back because Wall Street doesn't understand it. They confirmed that they are on target to have an answer for GF in Q3 (probably a divestiture but they didn't specify what will happen). 

As explained on earlier conference calls they said that the 34% bad loan reserve was forced by US GAAP but not Mexican GAAP and that was what forced all the very painful restatements. They also reconfirmed that they are likely to get the majority of that bad loan reserve reversed as the loans are paid off in the future (after being written off at 180 days). 

In short, I believe that GF has a lot of value for someone more worried about long term cash flow and/or someone who is not subject to US GAAP. This means a Mexican buyer or PE group are possible buyers. And I don't believe that the divestiture will be painful for EZPW. 

Once the GF deal is done they are apples to apples with FCFS and CSH and then the magic that Rotunda has been working in the core pawn businesses will become abundantly clear. Even with a hair cut for the dual stock structure at this point the stock will go into the mid-teens.

Btw...they spent most of the meeting crowing about the performance in the core pawn businesses. Less
Sentiment: Strong Buy
nvstr44 • 19 hours ago
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Thanks, Junky, always interested in your take, Like you, I hit a lot of grandslams in EZ starting about '01, got out a little after the peak and moved on. I'm very intrigued that you are back in it. Tempting.
1 Reply to nvstr44
ezpwjunky • 18 hours ago
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nvstr44, I remember you from the old days...like you I left after making a small fortune. I returned after Rotunda went back into the company. It has been a painful year for me but I'm pretty sure that like early last decade, it is going to be another grand slam in the next couple of years. 

The revenue, store counts, cash flow and pawn performance in the US and Mexico can't be overshadowed by Grupo Finmart forever. When it goes "apples to apples" with FCFS and CSH watch the stock quickly go into double digits. This is not even a stretch call. Less
Sentiment: Strong Buy

And here's the press release:
Quote
Update from Annual Stockholders Meeting

Apr 6, 2016

Austin, Texas (April 6, 2016) — EZCORP, Inc. (NASDAQ: EZPW) held its 2016 Annual Meeting of Stockholders on Tuesday, April 5, 2016, and management provided stockholders with updates in several areas.

Chief Executive Officer Stuart Grimshaw reaffirmed that the finalization of the strategic review of Grupo Finmart remains a key priority for the company, and that is anticipated by the end of June 2016. The company’s Board of Directors has commissioned a Special Committee of independent directors to oversee the strategic review. UBS Investment Bank is acting as financial advisor to EZCORP.

In terms of the performance of the core U.S. and Mexico Pawn businesses, Mr. Grimshaw reiterated the Q1 statement that both businesses delivered improved performance with the Q1FY16 key indicators slightly ahead of internal expectations.

The core Pawn businesses remain focused on growth. In the U.S., the company completed the acquisition of six stores in the Houston area doing business under the Pawn One brand.  These stores have now been fully integrated as part of the EZPAWN brand.  In Mexico, the business is focusing on new store openings, with four set to be opened in coming months.

Mr. Grimshaw said: “We continue to believe there is potential growth in our core U.S. and Mexico Pawn businesses. By focusing on meeting our customers’ needs better than anyone else in the market and creating a more efficient organization, we expect to see ongoing improvements in our business operations.”

Mr. Grimshaw also pointed out that, given the significant changes, challenges and initiatives the company has undergone and continues to deal with, management has been subject to an internally-imposed trading blackout for over a year.  This blackout is expected to continue until at least the public announcement of the outcome of the Grupo Finmart strategic review.

EZCORP also announced that Jodie Maccarrone, Chief Strategy Officer and Vice Chair, Grupo Finmart, will be leaving the company effective May 1, 2016.  Ms. Maccarrone joined EZCORP in April 2012 and served as President of the company’s U.S. Financial Services business from July 2014 until the company exited that business. In that role, Ms. Maccarrone was responsible for the implementation and execution of the exit plan, which was substantially completed in December 2015.

“Jodie was invaluable in leading the successful closure of our U.S. Financial Services business, and has also provided insight and analysis as we consider the strategic alternatives for our Grupo Finmart business.  We thank her for her contributions and wish her all the best for her future,” Mr. Grimshaw said.

EZCORP will release financial results for the second quarter of fiscal 2016 in early May.  Release details will be provided closer to the date.
Title: Re: EZPW - EZCorp
Post by: JayGatsby on April 07, 2016, 09:41:02 AM
If you add back 100% of the bad debt reserve doesn't GF still lose money?

Core pawn does seem to be doing well. Wish they'd consider buying back stock instead of acquisitions.. at these prices capital allocation is my biggest concern although they seem pretty focused now. Seems like if you can buy a store for 7x or repurchase stock at 5x you'd repurchase stock. Those numbers probably aren't right but it bothers me that they said they'd rather grow than buy back shares.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on April 07, 2016, 11:27:04 AM
I got into this stock because I thought it was simply too cheap.  Cheap enough to counteract the imbecile management & poor corporate governance.  I was wrong, very wrong.

Even thought the stock is up nicely lately, it still has a way to go.

If it can go up a bit more, I'll exit and take a nice loss.

If management is slow witted & working against shareholders, how cheap does it have to be?  Why even try to figure it out?  There are plenty of companies where management tries their best.

Title: Re: EZPW - EZCorp
Post by: racemize on April 07, 2016, 11:41:59 AM
Actually, I think current management is pretty good, and that the corporate structure actually has incentives better aligned now than they have at any point in the past 10 years (when the Madison Park agreement was in place).

With regard to Grupo, I think it's pretty clear it is on its way out.  It should be able to be profitable, but hopefully in someone else's hands.
Title: Re: EZPW - EZCorp
Post by: racemize on May 11, 2016, 09:15:03 AM
Just an update.  Q1 shows solid pawn business results.  They appear to be somewhat confident Grupo has buyers out there, and hope to close by end of year.

Market appears to like the news quite a bit.
Title: Re: EZPW - EZCorp
Post by: racemize on July 06, 2016, 01:41:02 PM
GF being sold:
http://finance.yahoo.com/news/ezcorp-enters-agreement-sell-grupo-201500270.html
Title: Re: EZPW - EZCorp
Post by: stahleyp on July 06, 2016, 01:54:08 PM
race are you up on this one? It's had quite a run recently.
Title: Re: EZPW - EZCorp
Post by: racemize on July 06, 2016, 11:12:57 PM
Yes, finally in the money on this one now, after averaging down.  Most of the people I recommended it to are up 50-100% these days, so I'm a little jealous.  If only I'd listened to myself later.

I think it still has room to run though.  This announcement is very good.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on July 07, 2016, 06:53:52 AM
Finally making some significant $$$$$ on this one.

Selling the GF division is certainly good news...get back to basics.  Blocking & tackling, making money.  That is what I like to see!

Heck, if this thing gets to $10, might even sell and redeploy the capital.  There are just so many low, low P/E stocks out there...
Title: Re: EZPW - EZCorp
Post by: stahleyp on July 07, 2016, 12:49:40 PM
Yes, finally in the money on this one now, after averaging down.  Most of the people I recommended it to are up 50-100% these days, so I'm a little jealous.  If only I'd listened to myself later.

I think it still has room to run though.  This announcement is very good.

Good to  hear man. This one has been pretty wild.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on August 22, 2016, 08:06:14 PM
WOW:

EZPW has had a heck of run lately! 

Glad I have not sold yet...but it is getting mighty tempting!

Anybody have any thoughts on the latest quarter?
Title: Re: EZPW - EZCorp
Post by: Rainforesthiker on September 04, 2016, 06:57:34 PM
Yes EZPW has been on a fabulous run and has turned out quite well.  So much so that it is now my largest position by quite a bit, and is about 24 % of my portfolio.  I view EZPW as a long term holding, given their now exclusive focus on pawn (mostly US pawn), which they seem to do well, and huge runway of roll-ups they can do to consolidate mom and pop pawn stores.  However, I need to trim this position at some point, and thus am curious re anyone's thoughts on intrinsic value.  I am going to dive into this a bit over the next few weeks, but would love to hear other thoughts.  When I had last looked at this in depth I had thought that EZPW could reach $15+ by mid next year.  I obviously need to revisit this.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on September 04, 2016, 08:05:15 PM
Yes EZPW has been on a fabulous run and has turned out quite well.  So much so that it is now my largest position by quite a bit, and is about 24 % of my portfolio.  I view EZPW as a long term holding, given their now exclusive focus on pawn (mostly US pawn), which they seem to do well, and huge runway of roll-ups they can do to consolidate mom and pop pawn stores.  However, I need to trim this position at some point, and thus am curious re anyone's thoughts on intrinsic value.  I am going to dive into this a bit over the next few weeks, but would love to hear other thoughts.  When I had last looked at this in depth I had thought that EZPW could reach $15+ by mid next year.  I obviously need to revisit this.
I am having some difficulty getting my head wrapped around it's intrinsic value...

Analysts are expecting up to $.60/share of earnings NEXT year.  So on a P/E basis, this has gotten a little ahead of itself.  Of course, if they do earn $.60/share next year AND clean up & build upon operations, then earnings could go substantially higher than that the year after.  Who knows, maybe close to $1/share.  Add another decent/good year and you earning WELL over $1/share and the current price might still be a bit low.

I also agree that they can "roll up" mom & pop pawn shop operators.  Heck, 20 years ago in Detroit, there were a handful of pawn shops.  Now there are literally dozens of them.  Sign #1443 of a downwardly mobile society...

EZPW has also grown to a rather large % in my portfolio...Not 25%, but a nice sized chunk.

One thing I'm thinking of doing is selling covered calls.  If I could solidly get $1.25 for the 12.5's, I would very seriously consider writing them.  Get a 22.5% income on a stock that has doubled in price in about a year.  Hard to beat!
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on December 15, 2016, 06:36:26 PM
Yes EZPW has been on a fabulous run and has turned out quite well.  So much so that it is now my largest position by quite a bit, and is about 24 % of my portfolio.  I view EZPW as a long term holding, given their now exclusive focus on pawn (mostly US pawn), which they seem to do well, and huge runway of roll-ups they can do to consolidate mom and pop pawn stores.  However, I need to trim this position at some point, and thus am curious re anyone's thoughts on intrinsic value.  I am going to dive into this a bit over the next few weeks, but would love to hear other thoughts.  When I had last looked at this in depth I had thought that EZPW could reach $15+ by mid next year.  I obviously need to revisit this.
I am having some difficulty getting my head wrapped around it's intrinsic value...

Analysts are expecting up to $.60/share of earnings NEXT year.  So on a P/E basis, this has gotten a little ahead of itself.  Of course, if they do earn $.60/share next year AND clean up & build upon operations, then earnings could go substantially higher than that the year after.  Who knows, maybe close to $1/share.  Add another decent/good year and you earning WELL over $1/share and the current price might still be a bit low.

I also agree that they can "roll up" mom & pop pawn shop operators.  Heck, 20 years ago in Detroit, there were a handful of pawn shops.  Now there are literally dozens of them.  Sign #1443 of a downwardly mobile society...

EZPW has also grown to a rather large % in my portfolio...Not 25%, but a nice sized chunk.

One thing I'm thinking of doing is selling covered calls.  If I could solidly get $1.25 for the 12.5's, I would very seriously consider writing them.  Get a 22.5% income on a stock that has doubled in price in about a year.  Hard to beat!

Glad I wrote covered calls on this a few days before earnings came out.  I got a VERY nice premium for the June 12.5's.

The earnings report looked kind of mixed to me...

On the plus side they are raising revenue, cutting expenses and getting their administrative house in order.

On the negative side, they still lost money.

Still hard to gauge where "normalized" earnings are truly at.

I suspect that at these prices the stock is fairly valued, but there is a chance of upside surprise in the next 12 months.

Anybody got any thoughts?
Title: Re: EZPW - EZCorp
Post by: racemize on December 15, 2016, 07:26:25 PM
EZPWjunky had a nice comment on yahoo board:

ezpwjunky6 days ago
For the first time in years I've spent a number of hours really digging into the EZPW numbers....I haven't had to do it before since the company was so grossly undervalued based upon easy to understand, high level metrics (e.g. revenue, store count, etc.). One would have to believe that Rotunda was a poor pawn operator to not understand how undervalued EZPW was. It is still undervalued by about 50-80% compared to FCFS on a revenue basis and store count basis (when considering the lower value of Mexican shops).

However, with the stock approaching $12 I thought it was time to do some deeper financial analysis. Key Point #1....EZPW has been outperforming FCFS in pawn loan outstanding (PLO) growth for many quarters. This means that EZPW is taking market share from FCFS (their PLO has actually been SHRINKING...check the 10Qs and a recent 8k on overstatements of PLO). On the call yesterday, Grimshaw confirmed for the first time that they were taking market share from FCFS.

Why then you might ask is EZPW not showing positive earnings? That is what I dug into. First of all you need to understand that a smart CEO will throw all the bad stuff into an already lost year (i.e. FY'16) and there is no incentive to increase EPS in a financial period that has been disastrous from a write down perspective (i.e. cleaning up prior management's messes). This is a high level comment but it is a valid point and self evident.

Digging into the numbers....it is clear that the 31 cent loss is almost all the CCV write down of about $17m. But that still leaves one wondering why no earnings even forgetting about CCV if the pawn businesses are doing so well? From the PR this week, it is clear that US and Mexican pawn had an aggregate of about $27m of EBITDA. This is a lot of cash thrown off by the operating units. Where did it go?

$18m PER QUARTER went to corporate expenses...this number is expected to go down to about $12m by this time next year (greatly reduced legal/accounting and incentive comp will allow them to hit this 30+% reduction). Also $4.5m was eaten by interest expenses. This will also go down dramatically as the Grupo Finmart $89m comes in. In short, there is probably $30-35m per year of corporate expenses and interest expense that will go away. This is about 55-64 cents per share of EBITDA that will be added by early FY'18 (only 9+ months away). Add in the D&A and you can see that they'll be throwing off tons of cash.

Lastly, one needs to understand that the upcoming December quarter and March quarters are seasonally better than the quarter just announced. Add in seasonal bumps (and a company no longer trying clear the decks of trash from prior management) and things will be looking much better even as early as this quarter (announced at the end of Jan or early Feb).

Finally, I believe that EZPW can continue to improve the underlying performance by their focus on the customer (e.g. the "mystery shopper" program). This should result in better PLO and PSC. Grimshaw has repeatedly shown how relatively small movements in net revenue throw off significant cash and earnings (i.e. great leverage). I expect Rotunda to continue to grow their PLO (at the expense of an FCFS trying to digest CSH) and that this too will result in further cash flow and earnings growth.

As I've been saying for many months, by the end of Q3 I see a $14-15 stock. But I'm most excited about F7'18...this is when the corporate expenses drop to only $50m per year (this is $22m less than the current run rate).
Title: Re: EZPW - EZCorp
Post by: Homestead31 on December 16, 2016, 01:11:37 PM
agree this is still cheap, but I think it is likely to get even cheaper in the new year.

i am sure that you are not the only one that has wound up with a bigger than intended position after the incredible run the stock has had off the lows.  i think it is likely that alot of people are planning to sell either 1) in the new calendar year so they can push out taxes for a year, or 2) when they reach long term holding status.

i'll be ready to buy more if/when it sells off.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on February 02, 2017, 04:32:28 PM
Hey all:

I sold some 12.5 June calls and am reasonably pleased with the outcome so far. Sold them for a bit over $1/contract, last quote was $.35?  Of course, the stock is below $10...

EZPW just released earnings of $.15/share for the quarter, compared to $.06/share for the prior quarter.  It seems to be in the middle range of the analysts range.

Revenue was up maybe 3%? 

Seems like the company is making decent progress...if they can keep it going, stock might still be cheap.

Any thoughts?
Title: Re: EZPW - EZCorp
Post by: racemize on February 02, 2017, 08:31:28 PM
oddly, the best commentary is on the yahoo boards for this stock.  Or in private conversations. 

I've come up with fair value at $15 from 3 different approaches.  If they execute, could get to $20 in a few years.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on February 10, 2017, 08:27:52 AM
Hey all:

Just bought back the June 12.5 calls to close out my position.  Why get greedy?  I made a nice $.90/share for a couple of months.

With a decent earnings report, EZPW might spike up a point or two.

At well below $10/share, I think EZPW is undervalued.  If they get a LITTLE bit better on their execution, that is going to make a BIG difference in company value and share price.

I think $20/share in a couple of years might be a bit optimistic, but not at all outside the realm of possibility.
Title: Re: EZPW - EZCorp
Post by: racemize on February 10, 2017, 09:00:01 AM
yeah, I think $20 is optimistic, but possible.  I'm certainly not betting on it.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on May 03, 2017, 03:28:08 PM
Hey all:

Anybody see EZPW's earnings today?  EPS of $.15  Looks like it well above what was expected. 

The company continues to make forward progress.  They opened a few new stores and anticipate opening up to 8 more in Mexico this year.

What was more impressive was the reduction in corporate overhead...looks like they did a very good job in that area.

If they can continue to grow the store base by low single digits, increase SSS low single digits, and then reduce corporate overhead...stock could be earning quite well in a couple few years.

I think I saw a report where they thought EZPW could be earning $1.50-$2/share in 5 years.

I just hope EZPW spikes up a bit and I'll sell some more covered calls!
Title: Re: EZPW - EZCorp
Post by: roark33 on May 03, 2017, 03:46:20 PM
   you don't see this often in earnings releases:   :(
Looting of twelve stores in January impacted not only through increased expenses, but by reducing revenue through stolen pawn loan collateral and inventory affecting PSC and sales.
Title: Re: EZPW - EZCorp
Post by: no_free_lunch on May 03, 2017, 05:46:33 PM
Dtejd. They have been talking those earnings numbers for years. It is cheap but watch out.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on May 06, 2017, 03:45:00 PM
Dtejd. They have been talking those earnings numbers for years. It is cheap but watch out.

Well yes, you are correct...HOWEVER, management has changed, divisions sold/shut down, and the business much more focused...

A bit of a risk, but I've got a nice capital gain now. 

I have/am writing covered calls to generate income and reduce my risk.  If EZPW can spike into the 11's, I'll write a 12.5 call 4-6 months out...

We will see.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on June 15, 2017, 12:23:37 AM
Hey all:

EZPW has had a little bit of a run lately.  No apparent news.

I am going to guess that they will continue to have good earnings.  Hopefully it will spike after that and I can sell some more covered calls!

Got to be careful though...don't want to let them go too cheap.

Anybody else have this/watch it?
Title: Re: EZPW - EZCorp
Post by: racemize on June 15, 2017, 07:05:49 AM
Holding until $15 is my plan. The incentives for management show up after september, so that is when I expect the good earnings to start coming in.
Title: Re: EZPW - EZCorp
Post by: Homestead31 on June 27, 2017, 01:55:13 PM
filing out that the company is going to issue a new convertible deal to repay existing expensive debt, and then use proceeds to buy stores in mexico and latin america.

this is potentially big. 

the existing debt is super expensive, so paying that down will drive EPS, and you can see FCFS getting a growth multiple b/c of all their moves south of the border over the last few years.  If EZPW is returning to growth mode after dealing with all the crap over the last few years, the multiple should improve.
Title: Re: EZPW - EZCorp
Post by: KJP on June 28, 2017, 08:59:09 AM
filing out that the company is going to issue a new convertible deal to repay existing expensive debt, and then use proceeds to buy stores in mexico and latin america.

this is potentially big. 

the existing debt is super expensive, so paying that down will drive EPS, and you can see FCFS getting a growth multiple b/c of all their moves south of the border over the last few years.  If EZPW is returning to growth mode after dealing with all the crap over the last few years, the multiple should improve.

Not exactly a ringing endorsement by the market today of management's ability to create value through acquisitions.  I understood part of the bull thesis to be that a rollup of pawn shops could be very accretive.  Is the concern that, given the company's history in Mexico, it should be focused on the U.S., rather than the apparently planned acquisitions in Latin America?
Title: Re: EZPW - EZCorp
Post by: racemize on June 28, 2017, 09:10:12 AM
Market probably doesn't like the uncertainty of the pricing.  Or just any announcement really, it seems like.

Anyhow, the problem with Mexico wasn't the pawn stores, it as the money-lending operation.  Expanding pawn operations into Mexico/LA would be a solid move for them and allow the operating leverage start working for them (just started making positive earnings in Mexico).

Also, they have been denying deals unless they are super cheap, so hopefully this means they found good prices for these new deals.  Or they relaxed their standards.  We'll see.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on June 28, 2017, 10:27:00 AM
Market probably doesn't like the uncertainty of the pricing.  Or just any announcement really, it seems like.

Anyhow, the problem with Mexico wasn't the pawn stores, it as the money-lending operation.  Expanding pawn operations into Mexico/LA would be a solid move for them and allow the operating leverage start working for them (just started making positive earnings in Mexico).

Also, they have been denying deals unless they are super cheap, so hopefully this means they found good prices for these new deals.  Or they relaxed their standards.  We'll see.

Yes, you are correct...I always understood the Mexican PAWNSHOPS to be profitable...

The only way this announcement could be a negative is if current management is simple minded.  I don't think that is the case.

I am seriously going to consider topping off my position.
Title: Re: EZPW - EZCorp
Post by: ragnarisapirate on June 28, 2017, 11:32:07 AM
This is potentially very exciting.
Title: Re: EZPW - EZCorp
Post by: racemize on June 28, 2017, 12:18:57 PM
Anything in particular you are thinking ragnar?
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on June 28, 2017, 03:40:15 PM
Hey all:

I bought more shares of this today.

Could the bigly price drop be hedging for the convertible debt to some degree?

Whatever the cause, I think a 15% selloff is not a rational response.
Title: Re: EZPW - EZCorp
Post by: Homestead31 on June 28, 2017, 05:17:18 PM
definitely some short selling in front of the convert.

the other side of it however is that a convertible bond is (potentially) dilutive to the equity.  terms aren't finalized, and there may be some derivatives around the bond to insure against excessive dilution, but you could make the argument that they are selling cheap stock to focus on acquisitions, which is not attractive for obvious reasons.  too early to tell at this point b/c we don't know final terms, and we don't know what they are going to buy.
Title: Re: EZPW - EZCorp
Post by: roark33 on June 28, 2017, 05:18:44 PM
Why would the insiders be "selling cheap stock"...don't you think the more logical explanation could be that they don't think the stock is that cheap? 
Title: Re: EZPW - EZCorp
Post by: Homestead31 on June 28, 2017, 06:28:37 PM
that is also possible, but i think it is hard to make that argument when the closest comp FCFS (which is very close indeed) trades at almost double the multiple, and EZPW is taking share from FCFS.

it is baffling why they would use (potential) equity currency, but management teams do stupid things all the time when it comes to capital allocation.  this is more surprising b/c these guys are supposedly financially savvy.  in any case, until terms are finalized, we won't know if it is really dilutive, or if there are derivatives or other features that will prevent the dilution.



Title: Re: EZPW - EZCorp
Post by: racemize on June 28, 2017, 06:57:00 PM
the term loan was really expensive.  Really don't know anything until we get the details.
Title: Re: EZPW - EZCorp
Post by: ragnarisapirate on June 28, 2017, 07:44:00 PM
It doesn't matter if the equity they issue is expensive or cheap... just so long as what they buy with it is cheaper.

I absolutely love the pawn business. These guys really seem to have turned the corner. I don't presently own any (previous did tho), but am really thinking about buying and making it a significant position. It seems like the big owner is starting to realize the only way his shares will be worth anything is if he isn't so shareholder unfriendly.

Think about how the incentives of this deal are probably going to work, and the comp and ownership of the company as a whole. Think of the industry dynamics at the moment.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on June 28, 2017, 11:21:24 PM
Hey all:

I am going to guess that EZPW management already has, OR is very close to having deal(s) in MX already lined up.  Now is probably a good time for Americans to be be buying Peso denominated assets.  The election of President Trump has made Mexican assets very cheap for dollar holders.

If I were management there is simply no way I would be announcing all this stuff UNLESS I already had acquisitions in the pipeline.

I also seem to recall reading somewhere that managements options vest later this year.  So probably better to do this now than later (from managements perspective).

Title: Re: EZPW - EZCorp
Post by: racemize on June 29, 2017, 05:01:38 AM
I've talked to lots of industry experts on pawn stores, and I've been hearing about some deals that EZPW has turned down.  It's my understanding, at least according to various pawn experts associated with EZPW over the years, that pawn stores are generally bought on a PLO+inventory basis.  Generally, pawn stores are bought in the range of 2xPLO+inventory-7xPLO+inventory.  I asked at the annual meeting how a 3xPLO+inventory converts to earnings, and they indicated somewhere around 5x earnings, for an average store. 

Anyway, I've heard that EZPW was not willing to buy anything over 3xPLO+inventory in recent months, which does confirm their comments on acquisition discipline.  It also confirms what ragnar is saying that even issuing cheap equity, you can acquire pawn stores even cheaper. 

Moreover, in conversations after the annual meeting, they indicated they would be figuring out how to overhaul their capital structure in June (now), so it isn't surprising they are doing something.  Certainly, everyone agreed that the term loan was too expensive.  The lack of pricing is a little weird though, and I think is causing the market to drop like it has.
Title: Re: EZPW - EZCorp
Post by: Homestead31 on June 29, 2017, 05:32:55 AM
It doesn't matter if the equity they issue is expensive or cheap... just so long as what they buy with it is cheaper.



you are of course technically correct in that it can be accretive whether the equity is expensive or cheap, but that definitely does not mean that this is the best way to finance a transaction.  A convert will give them a lower rate, which will save them $4-5 million bucks a year...   and then in 5 years they'll effectively be selling 20% of the company.  If the stock was presently at a high multiple of normalized earnings maybe that makes sense.  but at a ridiculously low multiple, it is not the best use of equity currency to save $25M by selling 20% of the company.
Title: Re: EZPW - EZCorp
Post by: KJP on June 29, 2017, 07:09:47 AM
Here's the pricing on the first $125 million of the convertibles:  https://www.sec.gov/Archives/edgar/data/876523/000087652317000080/a2017-q4convertiblenotesppr.htm

Conversion price is $10/share.

Title: Re: EZPW - EZCorp
Post by: racemize on June 29, 2017, 07:10:32 AM
Terrible price. This is quite disappointing.
Title: Re: EZPW - EZCorp
Post by: KJP on June 29, 2017, 07:26:45 AM
Is management's LTIP vesting based on growth in EBITDA or EBITDA/share?  The 10-K suggests it's just EBITDA growth. 
Title: Re: EZPW - EZCorp
Post by: Homestead31 on June 29, 2017, 07:36:44 AM
it is just EBITDA, not EBITDA per share, but they are rewarded in stock, so they should be focused on EBITDA per share to some lesser extent regardless
Title: Re: EZPW - EZCorp
Post by: KJP on June 29, 2017, 07:37:33 AM
it is just EBITDA, not EBITDA per share, but they are rewarded in stock, so they should be focused on EBITDA per share to some lesser extent regardless

The most important consideration is to ensure that they vest.
Title: Re: EZPW - EZCorp
Post by: KJP on June 29, 2017, 07:58:14 AM
I'm not an expert on convertibles or options pricing, but if you use 60% volatility (which is roughly the implied volatility on EZPW's December 2017 $10 calls) and a $7.70 current stock price, Black-Scholes would value a 7-year warrant on 1 EZPW share with a $10 strike at about $4.44.  If I understand the transaction correctly, the company is effectively selling a bond plus 12.5 million of those warrants.  Black-Scholes would value those 12.5 million warrants collectively at about $55 million. 

The annual interest on the notes is $3.6 million ($125 million * 2.875%)

After fees the company expects proceeds of $121 million from the offering.  If you subtract the $55 million value of the embedded warrants, that leaves a $66 million principal value for the embedded bond, implying an effective interest rate of about 5.5% (3.6/66).  Is that correct?
Title: Re: EZPW - EZCorp
Post by: odin on June 29, 2017, 09:45:37 AM
I can't speak to your math, but your effective yield makes sense intuitively. 

The 2019 converts are far out of the money and shouldn't have a huge amount of option value.  These were trading at about +290 to 2019.  Your 5.5% effectively yield is +340 over the 7-year.  I think this is close to where EZ would be able to issue straight bonds.
Title: Re: EZPW - EZCorp
Post by: KJP on June 29, 2017, 11:07:17 AM
I can't speak to your math, but your effective yield makes sense intuitively. 

The 2019 converts are far out of the money and shouldn't have a huge amount of option value.  These were trading at about +290 to 2019.  Your 5.5% effectively yield is +340 over the 7-year.  I think this is close to where EZ would be able to issue straight bonds.

Thanks for the sanity check.  I'm interested to hear management's justifications for this on the next call.

Title: Re: EZPW - EZCorp
Post by: racemize on June 30, 2017, 04:37:11 AM
So, we can't read the details yet, but there is one redeeming thing about these convertibles versus the old ones.  They have a call feature, which is:

Quote
The Company, at its option, may redeem for cash all or any portion of the Convertible Notes on or after July 6, 2021, if the last reported sale price of the Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days, including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

So, if the stock is trading over $13 for 20/30 days between July 6, 2021 and January 1, 2024, EZPW can call it in at par.  If we are  right, then the stock should be over that by then.  And maybe if we are right, then they will have the cash to call it in then.

They can convert based on some other conditions we don't know about yet though:
Quote
The Convertible Notes will mature on July 1, 2024, unless earlier converted, redeemed or repurchased in accordance with their terms. Prior to the close of business on the business day immediately preceding January 1, 2024, the Convertible Notes will be convertible at the option of the holder only upon the occurrence of certain events and during certain periods, and thereafter, at any time prior to the close of business on the business day immediately preceding the maturity date.

So, in some sense, it could be considered 'good' that the conversion price is lower, as it makes it easier for EZPW to call in sooner.  It seems like this is one of those "clever" trades where you get less interest charge if things go right, but there are shitty results if it doesn't go the right way.  I'd rater they have the higher interest term loan, honestly.  Or just raise a 7% bond. 
Title: Re: EZPW - EZCorp
Post by: KJP on June 30, 2017, 06:34:02 AM
So, we can't read the details yet, but there is one redeeming thing about these convertibles versus the old ones.  They have a call feature, which is:

Quote
The Company, at its option, may redeem for cash all or any portion of the Convertible Notes on or after July 6, 2021, if the last reported sale price of the Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days, including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

So, if the stock is trading over $13 for 20/30 days between July 6, 2021 and January 1, 2024, EZPW can call it in at par.  If we are  right, then the stock should be over that by then.  And maybe if we are right, then they will have the cash to call it in then.

They can convert based on some other conditions we don't know about yet though:
Quote
The Convertible Notes will mature on July 1, 2024, unless earlier converted, redeemed or repurchased in accordance with their terms. Prior to the close of business on the business day immediately preceding January 1, 2024, the Convertible Notes will be convertible at the option of the holder only upon the occurrence of certain events and during certain periods, and thereafter, at any time prior to the close of business on the business day immediately preceding the maturity date.

So, in some sense, it could be considered 'good' that the conversion price is lower, as it makes it easier for EZPW to call in sooner.  It seems like this is one of those "clever" trades where you get less interest charge if things go right, but there are shitty results if it doesn't go the right way.  I'd rater they have the higher interest term loan, honestly.  Or just raise a 7% bond.

I suspect that there are going to be broad rights to convert early.  For the reasons discussed earlier in the thread, it appears that whoever is buying these notes gave up 300 - 400 bps of yield to get the conversion feature/embedded warrant.  It's hard to believe someone would give up that much yield and also agree to a call feature that would render the embedded warrant worthless if the stock price rises above $13/share. 

Said another way, if the events triggering earlier convertibility were very narrow, the call feature would essentially cap the potential payout on the embedded warrant at $3/share (at a share price above $13 the company should just render the warrant worthless by issuing equity to redeem the bonds, rather than have them convert to equity at $10), implying a total potential payout on the embedded warrants of $37.5 million (12.5 million shares at $10 conversion price * $3/share).  That max potential payout has to be balanced against a real probability of the warrant being worthless if the stock price is below $10 or above $13.  Hard to see how that payout profile can possibly justify surrendering 300 - 400 bps of yield.

Long story short, either I don't understand the transaction (quite possible) or there are going to be broad rights to convert early.  Either way, the prospectus supplement for this offering will be educational.
Title: Re: EZPW - EZCorp
Post by: racemize on June 30, 2017, 06:56:24 AM
Or perhaps they just don't think the company is worth more than 13--the market is quite pessimistic after all. I'm very interested to read the details.
Title: Re: EZPW - EZCorp
Post by: Homestead31 on June 30, 2017, 04:55:44 PM
Terrible price. This is quite disappointing.

there seems to be a big lack of understanding with how convertibles work.  i definitely am not an expert, but from what i can tell from reading the stuff on the 2019 convert, while $10 is the "conversion price," it is not REALLY the conversion price b/c of derivatives. 

For example, the 2019 convert had a "conversion price" of $16.065, but then the 10k goes on to describe hedges around that, and then selling warrants with a strike of $20.83 - about 30% higher.  So basically the sold the convert which is 1 part bond, and 1 part long dated call option with a 16.065 strike.  then they buy a long dated call option with a similar or the same strike, and then they sell a warrant (which is basically a long dated call) at $20.83.  the combined result is that nothing has happens at $16.065, but if shares go to $20.83, they are on the hook.  Also from the 10k the effective interest rate on the 2019 converts was 8%, while the face rate is 2.125%.  that jump from 2.125% to 8% is because of the costs to buy back the 16.065 call that they were short from the convert.

bottom line is that the $10 price is mis-leading, because that is not the price that which dilution will happen at.  using the 2019 bonds as a guide, real potential dilution will likely be at $13.

to be clear, i STILL think $13 is cheap, but it isn't as cheap as $10.
Title: Re: EZPW - EZCorp
Post by: racemize on June 30, 2017, 05:50:33 PM
Terrible price. This is quite disappointing.

there seems to be a big lack of understanding with how convertibles work.  i definitely am not an expert, but from what i can tell from reading the stuff on the 2019 convert, while $10 is the "conversion price," it is not REALLY the conversion price b/c of derivatives. 

For example, the 2019 convert had a "conversion price" of $16.065, but then the 10k goes on to describe hedges around that, and then selling warrants with a strike of $20.83 - about 30% higher.  So basically the sold the convert which is 1 part bond, and 1 part long dated call option with a 16.065 strike.  then they buy a long dated call option with a similar or the same strike, and then they sell a warrant (which is basically a long dated call) at $20.83.  the combined result is that nothing has happens at $16.065, but if shares go to $20.83, they are on the hook.  Also from the 10k the effective interest rate on the 2019 converts was 8%, while the face rate is 2.125%.  that jump from 2.125% to 8% is because of the costs to buy back the 16.065 call that they were short from the convert.

bottom line is that the $10 price is mis-leading, because that is not the price that which dilution will happen at.  using the 2019 bonds as a guide, real potential dilution will likely be at $13.

to be clear, i STILL think $13 is cheap, but it isn't as cheap as $10.

The press releases for the previous convertibles included all that information.  In this case, they did not undertake those transactions, so I do not think they apply, unless they are going to enter into those contracts separately. 

I also think that extra cost from the 2014 AR is because of the embedded value of the call of the convertibles, not the hedging transaction.  KJP posted math to show how you get from the listed value to the accounting interest cost.
Title: Re: EZPW - EZCorp
Post by: racemize on June 30, 2017, 05:53:39 PM
Just for reference, the previous press release in 2014 used the exact language used in the current ones, excluding the call feature and the warrants/hedging.  Here is what the 2014 indenture said regarding the conversion (http://app.quotemedia.com/data/downloadFiling?webmasterId=101533&ref=9667102&type=HTML&symbol=EZPW&companyName=EZCORP+Inc.&formType=8-K&dateFiled=2014-06-23):

Quote
Section 4.01.  Conversion Rights.  (a)  Subject to and upon compliance with the provisions of this Article 4, each Holder shall have the right, at such Holder’s option, to convert solely into cash all or any portion (if the portion to be converted is $1,000 principal amount or an integral multiple thereof) of such Security (i) subject to satisfaction of one or more of the conditions described in subsections (b) through (e) of this Section 4.01, at any time prior to December 15, 2018, under the circumstances and during the periods set forth in subsections (b) through (e) of this Section 4.01, and (ii) irrespective of the conditions set forth in subsections (b) through (e) of this Section 4.01, on or after December 15, 2018, and prior to the close of business on the second Scheduled Trading Day immediately preceding the Maturity Date, in each case solely into cash at an initial conversion rate of 62.2471 shares of Class A Common Stock (subject to adjustment as provided in Section 4.04, the “Conversion Rate”) per $1,000 principal amount of Securities (subject to the payment provisions of Section 4.02, the “Conversion Obligation”). In no event may any Security be surrendered for conversion after the close of business on the second Scheduled Trading Day immediately preceding the Maturity Date.
 
(b)                       Prior to December 15, 2018, a Holder may surrender all or any portion of its Securities for conversion solely into cash during any fiscal quarter commencing after the fiscal quarter ending on September 30, 2014 (and only during such fiscal quarter), if the Last Reported Sale Price of the Class A Common Stock for at least 20 Trading Days (whether or not consecutive) during the period of 30 consecutive Trading Days ending on the last Trading Day of the immediately preceding fiscal quarter is greater than or equal to 130% of the Conversion Price on each applicable Trading Day.
 
(c)                        Prior to December 15, 2018, a Holder may surrender all or any portion of its Securities for conversion solely into cash during the five Business Day period after any five consecutive Trading Day period (the “Measurement Period”) in which the Trading Price per $1,000 principal amount of the Securities, as determined following a request by a Holder in accordance with the procedures described below, for each Trading Day of the Measurement Period was less than 98% of the product of the Last Reported Sale Price of the Class A Common Stock and the Conversion Rate on each such Trading Day. The Bid Solicitation Agent shall have no obligation to determine the Trading Price per $1,000 principal amount of the Securities unless the Company has requested such determination in writing; and the Company shall have no obligation to make such request unless a Holder provides the Company with reasonable evidence that the Trading Price per $1,000 principal amount of the Securities would be less than 98% of the product of the Last Reported Sale Price of the Class A Common Stock and the Conversion Rate.  No later than the Trading Day after receiving such evidence, the Company shall instruct the Bid Solicitation Agent to determine the Trading Price per $1,000 principal amount of Securities beginning on the Trading Day following the Trading Day on which the Bid Solicitation Agent receives such instructions and on each successive Trading Day until the Trading Day on which the Trading Price per $1,000 principal amount of Securities is greater than or equal to 98% of the product of the Last Reported Sale Price of the Class A Common Stock and the Conversion Rate.  If the trading price condition has been met on any Trading Day, the Company shall so notify the Holders, the Trustee and the Conversion Agent (if other than the Trustee) in writing on such Trading Day.  If, at any time after the trading price condition has been met, the Trading Price per $1,000 principal amount of Securities is greater than or equal to 98% of the product of the Last Reported Sale Price of the Class A Common Stock and the Conversion Rate for such Trading Day, the Company shall promptly so notify the Holders, the Trustee and the Conversion Agent (if other than the Trustee) in writing.
 
(d)        If, prior to December 15, 2018,  the Company:
 
(i)            issues to all or substantially all holders of Class A Common Stock any rights, options or warrants (other than under a shareholder rights plan where an adjustment is not made for such issuance under Section 4.04) entitling them, for a period of not more than 45 days after the announcement date of such issuance, to subscribe for or purchase shares of Class A Common Stock at a price per share that is less than the average of the Last Reported Sale Prices of the Class A Common Stock for the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of such issuance; or
 
(ii)           distributes to all or substantially all holders of Class A Common Stock the Company’s assets, securities or rights, options or warrants to purchase the Company’s securities, which distribution has a per share value, as reasonably determined by the Board of Directors, exceeding 10% of the Last Reported Sale Price of the Class A Common Stock on the Trading Day preceding the date of announcement for such distribution,
 
then, in either case, the Company shall notify the Holders and the Trustee at least 20 Scheduled Trading Days prior to the Ex-Dividend Date for such issuance or distribution.  Once the Company has given such notice, Holders may surrender all or any portion of their Securities for conversion solely into cash at any time until the close of business on the earlier of the Business Day immediately preceding the Ex-Dividend Date for such issuance or distribution and the Company’s announcement that such issuance or distribution will not take place.
 
Holders may not exercise their conversion right in connection with any distribution described in this Section 4.01(d), and notice of such events shall not be required, if such Holders participate at the same time and upon the same terms as holders of Class A Common Stock and solely as a result of holding their Securities, in any of the transactions described in this Section 4.01(d) without having to convert their Securities as if they held a number of shares of Class A Common Stock equal to the Conversion Rate, multiplied by the principal amount (expressed in thousands) of Securities held by such Holder.
 
(e)        If a transaction or event that constitutes a Fundamental Change or Make-Whole Fundamental Change occurs prior to December 15, 2018, regardless of whether a Holder has the right to require the Company to repurchase the Securities pursuant to Section 3.02, or if the Company is a party to a Specified Transaction (other than a reclassification of the Class A Common Stock that increases the rights thereof relative to the Class B Common Stock pursuant to which holders of the Class A Common Stock solely receive Common Equity interests that are listed or quoted on any Permitted Exchange or that will be so listed or quoted when issued or exchanged in connection with such transaction or transactions and as a result of such transaction or transactions such consideration becomes the sole Reference Property for the Securities) that occurs prior to December 15, 2018, then all or any portion of a Holder’s Securities may be surrendered for conversion solely into cash at any time from or after the date that is 90 Scheduled Trading Days prior to the anticipated effective date of the transaction (or, if later, the Business Day after the Company gives notice of the anticipated effective date of such transaction) until 35 Trading Days after the actual effective date of such transaction or, if such transaction also constitutes a Fundamental Change, until the related Fundamental Change Repurchase Date.  The Company shall notify the Holders, the Trustee and the Conversion Agent (if other than the Trustee) as promptly as practicable following the date the Company publicly announces such transaction, which will be at least 90 Scheduled Trading Days prior to the anticipated effective date of such transaction to the extent practicable, or if giving such advance notice is not practicable, within five Business Days of the date upon which the Company otherwise determines that the effective date of such transaction is reasonably certain, but in no event later than the actual effective date of such transaction.

Given that b) and c) neuter the call feature in the current press release, I hope they are not present for the ones just issued. 
Title: Re: EZPW - EZCorp
Post by: Ismael on July 01, 2017, 04:06:22 PM
If I were Cohen I would prefer the management be incentivized to increase EBITDA instead of EBITDA per share so that in a few years, when the smoke has blown over, I can reinstate the “consulting” fees.  If the cash flows are larger, then I can charge a higher “consulting” fee.  Is there any other reason to emphasize EBITDA vs EBITDA per share?  Also, it looks like the majority of the RSUs vest in Sept 2018 instead of Sept 2017.  Am I missing something here? 
Title: Re: EZPW - EZCorp
Post by: racemize on July 01, 2017, 04:41:21 PM
The compensation is based on FY18 performance, which starts 10/1/17.  So the expectation is that none of the reporting matters until Q1 for their compensation.
Title: Re: EZPW - EZCorp
Post by: Ismael on July 03, 2017, 10:03:25 AM
Gotcha.  Thanks @racemize for clearing that up.  I wonder how the issuance of the convertible debt will affect management’s RSU grants since 20% of their incentive is based upon lowering net debt. 

Under the ideal scenario, they use the proceeds to acquire the Mexican pawn businesses they wrote a letter of intent for (and the acquisitions are accretive).  If this pushes the stock up 30 percent the bonds convert to equity, net debt is reduced, EBITDA is increased, and management gets rewarded with an appreciated stock price.

It doesn’t sound like management would do a deal that isn’t accretive.  Any thoughts about what management will do with the capital raise if the deal associated with the letter of intent falls through?  A buyback? 

From a cursory look, the core business appears fairly stable so as long as the business sticks to its knitting.  I would expect this company to be somewhat counter cyclical.  Any thoughts about revenue growth and profitability if the economy keeps improving?  Is the worst-case scenario, the economy keeps improving causing revenues and/or profitability to suffer?  This sounds like an interesting downside scenario 8 years into a bull market.  Will EZPW’s business do well in a recessionary environment? 

It appears like Cohen’s special dividend is out of the picture for the foreseeable future and the special dividend risk is already priced into the stock anyhow.  Any other ideas about the downside potential here?  More looting of inventory?
Title: Re: EZPW - EZCorp
Post by: racemize on July 03, 2017, 10:40:39 AM
From the various discussions I've had with people associated with EZPW (now and in the past), I don't think a buyback or dividend is ever going to happen.

The thesis of this investment pretty much solely relies on expense cutting and/or operating leverage as they increase PLO.  While the economy can have some effect (and yes this is counter cyclical), it will likely be orders of magnitude less important than management executing. 

With Joe in as COO, I'm hopeful on that front and believe the current assets should let them make $1.00 per share or more.  However, this $10 conversion price scares the shit out of me, to be honest.  Unless we are protected from them converting and can call it away before they do, I'll be much more likely to exit if we get back over $10 again.  Increasing leverage and diluting equity at low prices just isn't my idea of a good capital allocation decision.

Edit: Oh and the downside is that management doesn't execute and/or they make stupid decisions like EZPW has in the past.  I have been hopeful that the new management is different, but I'm questioning that with this new debt deal.  Still need to see the details though.
Title: Re: EZPW - EZCorp
Post by: Picasso on July 03, 2017, 11:39:20 AM
With Joe in as COO, I'm hopeful on that front and believe the current assets should let them make $1.00 per share or more.  However, this $10 conversion price scares the shit out of me, to be honest.  Unless we are protected from them converting and can call it away before they do, I'll be much more likely to exit if we get back over $10 again.  Increasing leverage and diluting equity at low prices just isn't my idea of a good capital allocation decision.

There are different reasons why issuers like EZCORP have to tap the convertible market versus say a FSFC 5 3/8 of 2024 typical note.  When you factor in all the costs of hedging and so on, it's actually less costly on an all-in basis versus trying to find someone to take down a obscure unrated, unsecured bond deal.  You'd be looking at 12%+ coupon rates.  Especially given where the term loan priced in 2016.

I think they got a great deal on these new convertibles.  You can't really fault their capital allocation decision there.  Like someone else mentioned, the real cost is probably around 6% or so which is great.  More important to think about what they'll be buying.

One last note; companies that have a hard time in the debt markets (like EZPW) usually stay cheap in the equity markets until they season long enough.  But if you wait until banks lend at better terms then you'll be looking at a $20 stock and the opportunity has long disappeared. 

A term loan like this makes me slap on an extra "value trap discount" just to be safe in the equity...

Quote
Borrowings under the facility bear interest at an annual rate initially equal to the London Interbank Offered Rate (“LIBOR”) plus 7.5% or, at our election, a “Reference Rate” plus 6.5%, but will be reduced to LIBOR plus 6.5% or, at our election, the Reference Rate plus 5.5% upon the later of December 31, 2017 or the occurrence of a specified investment return event. The LIBOR is subject to a floor of 1% and the Reference Rate is subject to a floor of 3%. We pay a monthly fee of 2.75% per annum on the average daily unused portion of the Delayed Draw Term Loan facility and a quarterly loan servicing fee of $15,000. At the time of each draw under the Delayed Draw Term Loan facility, we will pay a funding fee of .875% of the funded Delayed Draw Term Loan.
Title: Re: EZPW - EZCorp
Post by: racemize on July 03, 2017, 01:04:51 PM
With Joe in as COO, I'm hopeful on that front and believe the current assets should let them make $1.00 per share or more.  However, this $10 conversion price scares the shit out of me, to be honest.  Unless we are protected from them converting and can call it away before they do, I'll be much more likely to exit if we get back over $10 again.  Increasing leverage and diluting equity at low prices just isn't my idea of a good capital allocation decision.

There are different reasons why issuers like EZCORP have to tap the convertible market versus say a FSFC 5 3/8 of 2024 typical note.  When you factor in all the costs of hedging and so on, it's actually less costly on an all-in basis versus trying to find someone to take down a obscure unrated, unsecured bond deal.  You'd be looking at 12%+ coupon rates.  Especially given where the term loan priced in 2016.

I think they got a great deal on these new convertibles.  You can't really fault their capital allocation decision there.  Like someone else mentioned, the real cost is probably around 6% or so which is great.  More important to think about what they'll be buying.

One last note; companies that have a hard time in the debt markets (like EZPW) usually stay cheap in the equity markets until they season long enough.  But if you wait until banks lend at better terms then you'll be looking at a $20 stock and the opportunity has long disappeared. 

A term loan like this makes me slap on an extra "value trap discount" just to be safe in the equity...

Quote
Borrowings under the facility bear interest at an annual rate initially equal to the London Interbank Offered Rate (“LIBOR”) plus 7.5% or, at our election, a “Reference Rate” plus 6.5%, but will be reduced to LIBOR plus 6.5% or, at our election, the Reference Rate plus 5.5% upon the later of December 31, 2017 or the occurrence of a specified investment return event. The LIBOR is subject to a floor of 1% and the Reference Rate is subject to a floor of 3%. We pay a monthly fee of 2.75% per annum on the average daily unused portion of the Delayed Draw Term Loan facility and a quarterly loan servicing fee of $15,000. At the time of each draw under the Delayed Draw Term Loan facility, we will pay a funding fee of .875% of the funded Delayed Draw Term Loan.

I get that it is probably the cheapest thing they could have done, but if the stock is dirt cheap then using Black-Scholes option pricing to get the interest rate doesn't seem too appropriate to me.  In other words, I would say it looks cheap according to modern finance theory, but it looks damn expensive as a value investor.  Even if they can make a good amount of money on the acquisitions (and I think they can) selling cheap to buy cheaper just feels shitty. 

Anyway, I'm not arguing against the opportunity.  I've been in this thing from $10 the first time, averaging down all the way to $3, still holding when it was over $12, and back down to this level.  And I've spent more time talking to pawn guys than any other industry I'm invested in, so maybe I'll end up being a pawn expert.  Mostly, I'm just making sure I'm staying honest with myself about what is currently happening. 
Title: Re: EZPW - EZCorp
Post by: racemize on July 06, 2017, 06:34:15 PM
Indenture is out.  As I read it, I see virtually no chance that we could call it away before they can convert.  I'd be happy if someone can read it otherwise.

http://app.quotemedia.com/data/downloadFiling?webmasterId=101533&ref=11688080&type=HTML&symbol=EZPW&companyName=EZCORP+Inc.&formType=8-K&dateFiled=2017-07-06
Title: Re: EZPW - EZCorp
Post by: Homestead31 on July 07, 2017, 08:56:35 AM
and no mention of derivatives.  definitely does not seem like an ideal capital raise.

that being said, i think judgement must be withheld until we see what any acquisition looks like.  i am generally not a fan of selling cheap stock to buy something even cheaper, but when one factors in that EZPW is under-scaled in mexico/latin america, it is possible that they wind up buying a group of stores for something like 2x EBITDA (including margin expansion from increased scale). 
Title: Re: EZPW - EZCorp
Post by: Ismael on July 10, 2017, 10:38:20 AM
What is the probability of management not executing?  From a high level it looks like they have as good of a management team as anyone can realistically expect (in this name).  Does management have much more room for cost reductions at this point?

Unfortunately, management is incentivized to increase cash flow without much consideration to dilution.  While management isn’t incentivized to avoid dilution, they talk like they will not make non-accretive acquisitions.  Is the risk here that in an improving macro environment (which is bad for this business) the management will lose its discipline and make non-accretive acquisitions to meet their EBITDA growth targets (to earn their RSUs)? 
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on July 31, 2017, 02:58:51 PM
Hey all:

Earnings are out!

Earnings of $.10/share in current quarter vs. a LOSS in the year ago period.

Looks like that is about what analysts are expecting.

Analysts are expecting earnings of $.14/share in the next reporting period...and earnings of about $.72/share for the upcoming year.

Holding a stock with a high P/E like 10 makes me nervous, but who knows?  The stock might get some momentum & growth investors behind it and might even trade for a P/E of 12 or 14!

Crazier things have happened!

Any body got any input?
Title: Re: EZPW - EZCorp
Post by: odin on July 31, 2017, 03:01:15 PM
I've been amazed at their loan growth trends compared to FCFS.  Granted, they stuggled a few years ago and put in a low base, but I'm still impressed.
Title: Re: EZPW - EZCorp
Post by: Homestead31 on July 31, 2017, 05:40:44 PM
was hoping to see something about the non-binding LOI to buy latin american pawn assets in the release, but no such luck.  if management doesn't talk about this on the call, there will certainly at least be a question or two.

while the company is continuing to execute at a high level, in my view what is likely to really drive the stock going forward is if they can return to growth in mexico/latin america.  they are under-scaled, and thus their margins are not where they could be.  a large acquisition could give them the scale to really expand margins, and obviously the top line would grow as well.
Title: Re: EZPW - EZCorp
Post by: whistlerbumps on August 21, 2017, 08:40:16 AM
What are people's thoughts about the convertible issue?  To me, it only makes sense if they find a very accretive acquisition with that capital... Otherwise they just sold a ton of stock cheaply for minimal interest savings..... Given the apparent intelligence of the mgmt team, I am surprised they couldn't find a better option...
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on August 22, 2017, 07:01:29 AM
What are people's thoughts about the convertible issue?  To me, it only makes sense if they find a very accretive acquisition with that capital... Otherwise they just sold a ton of stock cheaply for minimal interest savings..... Given the apparent intelligence of the mgmt team, I am surprised they couldn't find a better option...

The latest convertible issue was certainly not the optimum way to move forward...but this industry is notorious for difficulty in financing.  I also strongly suspect that management has a very specific need for the capital (ie expanding Mexican operations).

I would have preferred a different route taken with the financing, but it is not the catastrophe that investors initially thought that it was.

These guys should be able to produce better earnings going forward.

There was also a very positive VIC writeup on EZPW the other day.

One of the few moves I've done correctly lately was topping off my position when the share price crashed on announcement of the convertible.

Title: Re: EZPW - EZCorp
Post by: JayGatsby on August 24, 2017, 07:29:31 PM
Any views on Cash Converters as a standalone entity? (Latest investor pres: http://www.cashconverters.com/Files/Download/1172)

Numerically it's pretty cheap, although it has a few different business lines making it more difficult to value. Each on had huge YoY swings with an overall downward trend. The personal finance division seems to generate the bulk of their profit. Based on the loan balance that seems to be largely payday style loans.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on September 25, 2017, 07:02:02 AM
Hey all:

Anybody else watching/invested in EZPW?  They've had a bit of a run lately, with shares hitting $10 this AM.

There does not appear to be any specific news.  I guess the market has gotten over their financing kerfluffle.

They had a nice "slide deck" presentation, outlining future directions for the company.

If they can put another good quarterly report, the stock might solidly be over $10.  If that can happen, I will strongly consider writing some more covered calls.

Any opinions?
Title: Re: EZPW - EZCorp
Post by: racemize on September 25, 2017, 07:10:36 AM
I’ve heard the pawn industry is really struggling and that a good number of pawn stores are on the verge of bankruptcy due to the economy continuing to be pretty good. I think you can see that in FCFS numbers where PLO is decreasing. However, EZPW has been increasing PLO, but I think that is because of how poorly it had been run. With that and the dilution at $10, I sold half. I think it could be worth a lot more, and maybe they have pulled off a huge acquisition in Mexico, but the situation, management’s recent behavior, and the general lower than expected earnings makes me nervous.
Title: Re: EZPW - EZCorp
Post by: Rainforesthiker on September 25, 2017, 07:37:13 AM
I once had a sizable position in EZPW - I had continued to average down when the stock was tanking, and my average price was below $6 per share.  Recently I have been selling as the stock got over $9 per share.  I have almost cut my position in half at this point, and I will likely keep selling to get down to a more reasonable position size.  I don't want a large position here at these prices, and given the various potential management issues, dilution, etc.  But I do think there is more potential upside.
Title: Re: EZPW - EZCorp
Post by: ragnarisapirate on September 25, 2017, 09:27:22 AM
I’ve heard the pawn industry is really struggling and that a good number of pawn stores are on the verge of bankruptcy due to the economy continuing to be pretty good. I think you can see that in FCFS numbers where PLO is decreasing. However, EZPW has been increasing PLO, but I think that is because of how poorly it had been run. With that and the dilution at $10, I sold half. I think it could be worth a lot more, and maybe they have pulled off a huge acquisition in Mexico, but the situation, management’s recent behavior, and the general lower than expected earnings makes me nervous.

If there are struggling shops, the best thing ezpw could do is raise cash to buy them with. Pawn is a fantastic business. Fantastic!
Title: Re: EZPW - EZCorp
Post by: Homestead31 on September 25, 2017, 05:55:14 PM


If there are struggling shops, the best thing ezpw could do is raise cash to buy them with. Pawn is a fantastic business. Fantastic!

agree - not sure what to say other than while pawn does well through a cycle and I would not consider it a cyclical business, if there is a cycle, the time you want to buy the business (any cyclical business) is at the bottom of the cycle.  With unemployment at record lows, this is the bottom of the cycle (if there is one).
Title: Re: EZPW - EZCorp
Post by: KJP on October 09, 2017, 07:21:31 AM
They just closed on the LatAm transaction they've been hinting at for awhile:  http://investors.ezcorp.com/home?item=315 
The transaction adds 112 pawn stores, with the majority (72) in Guatemala; none of them is in Mexico.

Last week they also restructured the Grupo Finmart note:  http://investors.ezcorp.com/2017-10-03-EZCORP-Restructures-Repayment-Arrangement-With-AlphaCredit


Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on October 09, 2017, 09:36:16 AM
They just closed on the LatAm transaction they've been hinting at for awhile:  http://investors.ezcorp.com/home?item=315 
The transaction adds 112 pawn stores, with the majority (72) in Guatemala; none of them is in Mexico.

Last week they also restructured the Grupo Finmart note:  http://investors.ezcorp.com/2017-10-03-EZCORP-Restructures-Repayment-Arrangement-With-AlphaCredit

A little too soon to tell for sure...but it appears to be a good deal and will significantly expand geographic reach, sales, and earnings of the company.

As I and other suspected, they were issuing the debt to make an acquisition.  The debt was expensive, but it well could be that it was "cheap" in comparison to the asset that they got.

We will see, but it looks to be a very positive development.
Title: Re: EZPW - EZCorp
Post by: Homestead31 on October 23, 2017, 10:47:47 AM
Food for thought.

EZPW and FCFS are the only players in the pawn market with scale.

For the last few years, FCFS has been an aggressive acquirer.

For the last few years, EZPW has NOT been an aggressive acquirer b/c they had a whole slew of internal problems to deal with.

EZPW has largely moved past their internal problems, and is now once again an acquirer.

For the last few years, FCFS had no competition when they were making acquisitions, so they were able to pay lower prices.

Now, FCFS has to worry about EZPW, and any future acquisition is likely to be a competitive process, driving up prices.

If FCFS bought EZPW - which would require a significant premium based on multiples, massive synergies, and Cohen's control position - it would likely still be worth it to FCFS, because buy paying UP for EZPW, they would be able to pay DOWN for everything else.

Not saying it is going to happen tomorrow, but I think it is highly likely FCFS buys EZPW at a fat premium within the next 2-3 years.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on October 24, 2017, 10:38:43 AM
Food for thought.

EZPW and FCFS are the only players in the pawn market with scale.

For the last few years, FCFS has been an aggressive acquirer.

For the last few years, EZPW has NOT been an aggressive acquirer b/c they had a whole slew of internal problems to deal with.

EZPW has largely moved past their internal problems, and is now once again an acquirer.

For the last few years, FCFS had no competition when they were making acquisitions, so they were able to pay lower prices.

Now, FCFS has to worry about EZPW, and any future acquisition is likely to be a competitive process, driving up prices.

If FCFS bought EZPW - which would require a significant premium based on multiples, massive synergies, and Cohen's control position - it would likely still be worth it to FCFS, because buy paying UP for EZPW, they would be able to pay DOWN for everything else.

Not saying it is going to happen tomorrow, but I think it is highly likely FCFS buys EZPW at a fat premium within the next 2-3 years.

A very interesting thought! 

Do you happen to know about how many smaller operators are being bought out by FCFS?  If I am not mistaken, has this slowed down recently?  I also wonder what the dollar volume of buyouts has been vs. how much it would cost to buy out EZPW?

For example, if they have bought 100 pawn shops and paid $250MM for them...it might not make sense to take out EZPW, as it might cost $750MM to $1BB to acquire EZPW.  That would be simply too much to take out a competing bidder.

Of course, they would get all of EZPW's business too.  They would also get some nice Mexican and S. American operations too...

If EZPW's latest acquisition works out AND they continue to execute according to plan in the USA, they should be earning $1/share or maybe a bit more in 2 years.  I would imagine that a buyout would have to be at a good premium and I would guess somewhere around $20/share?

Title: Re: EZPW - EZCorp
Post by: racemize on October 24, 2017, 10:44:15 AM
FYI, I've heard of buyouts of U.S. pawn stores at $750k each recently.  Also, with the 25% dilution > $10, I struggle seeing EZPW getting to $1 EPS without a lot of operating leverage coming in.  I decided to sell out as I think it requires a lot of execution, and I'm not happy with the dilution.  They do need scale to get Latin America up to snuff, but they did it at a pretty bad time, stock-wise.  If it drops back down to $7 or $8, I'd be back in.  I can also see this going to $15+ if things go well.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on November 15, 2017, 09:50:09 PM
Hey all:

Anybody else besides me & Ragnar watching/owning EZPW?

They came out with pretty good earnings today after the market closed.  EPS of $.21/share even with the two hurricanes and the latest quarter traditionally being one of their slower ones.  This earnings was substantially more than even the most bullish analyst predicted.

I am going to guess that analysts are going to have to revise their estimates UP for the upcoming year.

Making $1/share in the near future does not look like such a stretch now.  If they can do that, the stock is probably undervalued.

Finally, also looks like their Mexican division is doing well.

Will be interesting to see where the stock opens tomorrow.
Title: Re: EZPW - EZCorp
Post by: ragnarisapirate on November 15, 2017, 10:32:22 PM
Hey all:

Anybody else besides me & Ragnar watching/owning EZPW?

They came out with pretty good earnings today after the market closed.  EPS of $.21/share even with the two hurricanes and the latest quarter traditionally being one of their slower ones.  This earnings was substantially more than even the most bullish analyst predicted.

I am going to guess that analysts are going to have to revise their estimates UP for the upcoming year.

Making $1/share in the near future does not look like such a stretch now.  If they can do that, the stock is probably undervalued.

Finally, also looks like their Mexican division is doing well.

Will be interesting to see where the stock opens tomorrow.

For what it’s worth, I really like EZPW. Lots of intreresting things going on. Interesting how quickly, the bad governance practices have been forgotten.Neat business. Seemingly cheap price. Even an interesting hedge for a recession.
Title: Re: EZPW - EZCorp
Post by: KJP on November 16, 2017, 06:55:51 AM
Hey all:

Anybody else besides me & Ragnar watching/owning EZPW?

They came out with pretty good earnings today after the market closed.  EPS of $.21/share even with the two hurricanes and the latest quarter traditionally being one of their slower ones.  This earnings was substantially more than even the most bullish analyst predicted.

I am going to guess that analysts are going to have to revise their estimates UP for the upcoming year.

Making $1/share in the near future does not look like such a stretch now.  If they can do that, the stock is probably undervalued.

Finally, also looks like their Mexican division is doing well.

Will be interesting to see where the stock opens tomorrow.

For what it’s worth, I really like EZPW. Lots of intreresting things going on. Interesting how quickly, the bad governance practices have been forgotten.Neat business. Seemingly cheap price. Even an interesting hedge for a recession.

I still own this, but I'm always skittish about it because, as ragnar mentioned, the governance issues are still there.  So, while pawn might be an above-average business with above-average growth opportunities, I'm skeptical that EZPW deserves even an average multiple.
Title: Re: EZPW - EZCorp
Post by: racemize on November 16, 2017, 06:59:27 AM
I'm out of this recently, but here are my thoughts on the quarter:

results look pretty good
Still, adjusting for dilution (which I feel like we ought to be), I don't like the current multiple.  Let's say they can earn $1 a share, after the cuts and whatnot, which I think is potentially optimistic, but a decent estimate in the next 1-3 years.  Assuming $11 per share, they would dilute by about 15 million shares with the new convertibles.  $1 per share is $55 million earnings.  55 million / 70 million shares -> $0.78 per share.  So it's already at 14 P/E with those assumptions, and I think that's 1-2 years forward earnings. 

Of course FCFS multiple is insane, so if you put that on this, then it could trade much higher.  Absent the dilution, I probably would still be in this, but that's a huge knock to EPS going forward, and it isn't represented in the reported results.  (And I don't think they are going to pay in cash, even though they should, so there's a possibility for it being a lot better outcome).
Title: Re: EZPW - EZCorp
Post by: Homestead31 on November 16, 2017, 10:54:44 AM
prior to 2024 for the convert to actually convert the share price has to be above $13.00, which is still 18% higher than it is now ($11).  Further, it is pretty rare for converts to get converted early, b/c there is option value to a convert, and you are giving up that value if you convert early.  I actually think it is unlikely that they will ever convert b/c EZPW is on their way to gushing cash.  They have ~6 years to come up with the cash, which is a long time.

FCFS is trading at 16x P/T12M FCFE, which does not strike me as insane for a company that has grown top line at 20% for a decade, is returning cash through dividends and buybacks, and is recession proof.

sell side has EZPW at 10 or 11x ~P/normalized FCF.  Sell side coverage of EZPW is also probably the worst I have ever seen, as they fail to give credit for hidden assets,  and focus on earnings when FCF > earnings, and the JeffCo analyst has even made balance sheet mistakes when calculating EV.  Sell side also bases their multiples on "financial services peers" most of which are way worse business, with way more regulatory risk.  Sell side is not paid to "think" though, so it is what it is.

you can of course rightfully argue that EZPW deserves a discount to FCFS b/c of the corporate governance issues, but i think that is short sighted.  FCFS would LOVE to own EZPW, and they will probably even tell you that if you ask.  they will tell you that they have regular dialogue.  FCFS has been a growth story b/c the last few years while EZPW has been dealing with their own internal problems, FCFS has been snatching up major players throughout the US, Mexico, Central & South America.  They have been able to pay low prices b/c they were the only buyer.  That has all changed however, b/c EZPW has operating at an extremely high level, and has moved past their problems, and has re-emerged as a potential buyer for all sizable pawn assets.  FCFS now has competition when they never did before.  thinking strategically, FCFS would be complete fools if they didn't try to eliminate their only bid-competition by buying EZPW.  For this reason, EZPW deserves a multiple on par with FCFS, or maybe a turn or 2 lower... but not 5 or 6 turns lower.

EZPW can probably do ~115M in EBITDA in a year or 2 (for 2017, the target range was $86.4 to $116.8M, so not a stretch to think they can hit the high end in a year or 2 given the additions in Central America, continued cost cutting, and continued PLO growth) and FCFS can probably realize $35M in synergies.  at 11x (FCFS CSH fairness opinion called for a range of 10-12.5x if memory serves) that gets you to a per share price of something between $25-30 depending on how you think about the convert and cash accumulation/debt paydown.

betting on a takeout is not generally an effective strategy, but betting on a recession resistant company trading at ~10 or 11x FCF and below the breakup value of the stores while operating at a very high level, that ALSO has a very good chance of being taken out in the next couple years is better than a stick in the eye in my book.
Title: Re: EZPW - EZCorp
Post by: KJP on November 16, 2017, 11:46:36 AM
prior to 2024 for the convert to actually convert the share price has to be above $13.00, which is still 18% higher than it is now ($11).  Further, it is pretty rare for converts to get converted early, b/c there is option value to a convert, and you are giving up that value if you convert early.  I actually think it is unlikely that they will ever convert b/c EZPW is on their way to gushing cash.  They have ~6 years to come up with the cash, which is a long time.

I don't follow this. As you note, the convert holders wouldn't convert early unless forced to do so by the call feature. (And it may make sense to invoke the call feature to strip the converts of any remaining option value.)  But if the share price is above the conversion price at call or maturity, they will convert and there will be dilution.  So, what do you mean by EZPW has "~6 years to come up with the cash[.]"

One way to analyze the company is to build a pro forma balance sheet that converts the 2024s and refinances the 2019s with straight debt (their conversion price is above $16/share), so long as you believe EZPW could issue straight debt by the 2019 maturity, and then run the implied interest on the new debt through a pro forma income statement to see what the implied p/e is under that capital structure. 

The other thing you have to account for is the roughly $100 million in cash currently sitting on EZPW's balance sheet.  What are you going to do with that money?  Delever to help with refinancing the 2019s? Make additional acquisitions?  The value that will (or could) be generated by the excess cash isn't being captured by just looking at current p/e.
Title: Re: EZPW - EZCorp
Post by: KJP on December 05, 2017, 06:22:11 AM
EZCorp just bought another 21 stores in Sinaloa, Mexico:  http://investors.ezcorp.com/home?item=318

No details about the price or current profitability of the stores, other than the statement that the acquisition will be "accretive," which is essentially meaningless given that they're paying in cash that's currently earning around 0% interest. 
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on January 31, 2018, 03:27:38 PM
Hey all:

Looks like EZPW will hit the $1/share of earnings perhaps even sooner than I thought?

They reported earnings of $.23/share today.  This was vs. analysts estimate of $.19/share.

This reported quarter also had some problems in the USA, specifically the hurricanes in TX.

So all in all, this appears to be very good for owners of EZPW.

Should be a lot more information after tomorrow AM's conference call.

We will see!
Title: Re: EZPW - EZCorp
Post by: ragnarisapirate on May 02, 2018, 04:20:58 PM
I really like this company. Agree with DTEJD that they should get around a buck a share soonish. AND they are improving their Latin American stores... When comparing them to FCFS, it’s interesting.

I kinda view this company as an improving one in a bull market, that deserves a higher multiple, that also has the built in kicker of “end of the world insurance.” They are based in TX too, which, all things equal, should help their tax paying status relative to other companies, from the deductibility of state taxes.

There is just a lot of cool stuff. Love the industry. I think someone on here made a comment about them getting acquired. I am not banking on it, but, this looks like a company that is prepping to sell itself to a serial acquirer (FCFS) in the industry. If not? Who cares. It seems that their governance issues are not what they had been. Never thought that the turnaround would have been like this. It’s pretty amazing that the company was in such bad shape in the last year and a half, and is now where it is!

Here’s their newest presentation.
https://s22.q4cdn.com/137492174/files/doc_presentations/Q2FY18-Conference-Call-Slides-Final_050218.pdf
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on May 03, 2018, 12:05:09 AM
yo, Yo , YO:

Not too many people are watching EZPW, so I'll take that as a good thing.

The few analysts are obviously too low on their earnings estimates.

I think we get $1/share in earnings this year.

The exciting thing could be what will earnings be in the next year (2019)?  Could they go from $1 to $1.25?    That might be a bit optimistic, but we very well could get close.

I would think that EZPW very well could trade for a 16 P/E.

Got to keep an eye on the share dilution from the convertible bonds...

Good things are ahead for EZPW I think!
Title: Re: EZPW - EZCorp
Post by: ScottHall on May 03, 2018, 12:27:37 AM
I like American Carnage.
Title: Re: EZPW - EZCorp
Post by: lathinker on May 09, 2018, 01:07:26 PM
 AUSTIN, Texas--(BUSINESS WIRE)-- EZCORP, Inc. (NASDAQ: EZPW) (the “Company”), a leading provider of pawn loans in the United States and Latin America, announced today that it intends to offer, subject to market conditions and other factors, $100 million aggregate principal amount of convertible senior notes due 2025 (the “Convertible Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933 (the “Securities Act”). The Company expects to grant an option to the initial purchasers for up to an additional $15 million aggregate principal amount of Convertible Notes. The Convertible Notes are expected to pay interest semiannually and will be convertible into cash, shares of the Company’s Class A common stock or a combination thereof, at the Company’s election, based on a conversion rate to be determined. The Convertible Notes will mature on May 1, 2025, unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. Prior to the close of business on the business day immediately preceding November 1, 2024, the Convertible Notes will be convertible at the option of the holder only upon the occurrence of certain events and during certain periods, and thereafter, at any time prior to the close of business on the business day immediately preceding the maturity date.

The Company intends to use the net proceeds from this offering for general corporate purposes and potentially to fund acquisitions. The Company is in various levels of discussion regarding a number of acquisition opportunities in the U.S., Canada, and Latin America, and have entered into non-binding letters of intent to acquire pawnshops in Latin America. At this time, there can be no assurance that the Company will complete any of those potential acquisitions.


-----------------------------------------------
Does anybody understand why they continue to fund themselves through dilutive convertible bonds? This is not the first time they are using this instrument and like last time, the market is puking on the news. I would expect them to get financing without having to extend convesrion options, so the only way this makes sense to me is that they are trying to redistribute shareholders money to the noteholders - happy to learn of another rationale though.
Also, will be interesting to see who buys the notes...
Title: Re: EZPW - EZCorp
Post by: racemize on May 09, 2018, 01:19:54 PM
The CEO doesn't seem to care about the dilution or the cost.  When I asked him about it, he said, basically, "I don't know why you guys are so worried about this, we're just going to roll it." 

The last one has been so expensive and is the reason I sold.  They will either have to pay a lot of money (in cash or in new debt) or issue a lot of shares.  If the CEO can't figure out $10 a share was a stupid price for a convertible, I just don't know what to say.  The 8% term loans would have been far cheaper.

I would have held this one for a long time, but given these convertibles and the controlling shareholder, I'll forgo the upside.
Title: Re: EZPW - EZCorp
Post by: KJP on May 09, 2018, 02:54:21 PM
-----------------------------------------------
Does anybody understand why they continue to fund themselves through dilutive convertible bonds? This is not the first time they are using this instrument and like last time, the market is puking on the news. I would expect them to get financing without having to extend convesrion options, so the only way this makes sense to me is that they are trying to redistribute shareholders money to the noteholders - happy to learn of another rationale though.
Also, will be interesting to see who buys the notes...

Has the pricing been disclosed?  Without that, you can't tell how dilutive the converts are (or may be).
Title: Re: EZPW - EZCorp
Post by: racemize on May 09, 2018, 04:51:30 PM
-----------------------------------------------
Does anybody understand why they continue to fund themselves through dilutive convertible bonds? This is not the first time they are using this instrument and like last time, the market is puking on the news. I would expect them to get financing without having to extend convesrion options, so the only way this makes sense to me is that they are trying to redistribute shareholders money to the noteholders - happy to learn of another rationale though.
Also, will be interesting to see who buys the notes...

Has the pricing been disclosed?  Without that, you can't tell how dilutive the converts are (or may be).

It will be based on today's closing price, if it follows the patterns from before.
Title: Re: EZPW - EZCorp
Post by: ragnarisapirate on May 09, 2018, 07:30:11 PM
The CEO doesn't seem to care about the dilution or the cost.  When I asked him about it, he said, basically, "I don't know why you guys are so worried about this, we're just going to roll it." 

The last one has been so expensive and is the reason I sold.  They will either have to pay a lot of money (in cash or in new debt) or issue a lot of shares.  If the CEO can't figure out $10 a share was a stupid price for a convertible, I just don't know what to say.  The 8% term loans would have been far cheaper.

I would have held this one for a long time, but given these convertibles and the controlling shareholder, I'll forgo the upside.

Can you go into more detail as to the ceos comments?
Title: Re: EZPW - EZCorp
Post by: KJP on May 10, 2018, 01:40:06 PM
$150 million at 2.375%, convertible at $15.90/share.

https://investors.ezcorp.com/investor-news/press-release-details/2018/EZCORP-Announces-Pricing-of-Private-Offering-of-150-Million-of-Convertible-Senior-Notes-Due-2025/default.aspx
Title: Re: EZPW - EZCorp
Post by: Sunrider on May 11, 2018, 12:21:41 AM
$150 million at 2.375%, convertible at $15.90/share.

https://investors.ezcorp.com/investor-news/press-release-details/2018/EZCORP-Announces-Pricing-of-Private-Offering-of-150-Million-of-Convertible-Senior-Notes-Due-2025/default.aspx

Hmmm - unless I read that wrong, it doesn’t seem as bad as the previous one - low rate and convertible at the company’s option, so not forced/inevitable dilution?
Title: Re: EZPW - EZCorp
Post by: lathinker on May 12, 2018, 05:18:44 AM
 
Quote
The Convertible Notes will mature on May 1, 2025, unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. Prior to the close of business on the business day immediately preceding November 1, 2024, the Convertible Notes will be convertible at the option of the holder only upon the occurrence of certain events and during certain periods, and thereafter, at any time prior to the close of business on the business day immediately preceding the maturity date.

The Company, at its option, may redeem for cash all or any portion of the Convertible Notes on or after May 1, 2022, if the last reported sale price of the Company’s Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days, including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

Sunrider, this reads like the option will be with the holder and only from May 2022, EZPW can somewhat cap the upside. Not sure how the "certain events"/"certain periods" will be specified in the end, but we have to assume that the convertible-holder will have at least a 4y-option.

I tried to value a 4-year-call here: http://www.fintools.com/resources/online-calculators/options-calcs/options-calculator/
Assuming a stock price of 13.25$, strike price of 15.90$ and 30% volatility, the call value is about 2.70$ per share which is 170$ per 1000$ of convertible notes.
The worst aspect, in my  view, is that the stock price dropped 10% on the convertible announcement, but the reference price they used for the convertible pricing is AFTER that drop. So, they send their stock price south  first and price the dilutive instrument on that cheaper price in step two.

Pricing the call based on the close price just a day earlier would have moved the conversion strike to 17.65 for a 20% premium. Alternatively, you a 15.90$ strike on a 14.70$ stock price give a call value of 3.55$ per share or 224$ per 1000$ of convertible.

I cannot see how this is not an (in my view outrageous) wealth transfer from  shareholders to convertible investors and woukd still be interested to learn how is buying these notes.
At this point, I still  own some EZPW shares but it really feels like racemize's conclusion is the way to go here.

Title: Re: EZPW - EZCorp
Post by: Sunrider on May 13, 2018, 12:33:31 PM
Quote
The Convertible Notes will mature on May 1, 2025, unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. Prior to the close of business on the business day immediately preceding November 1, 2024, the Convertible Notes will be convertible at the option of the holder only upon the occurrence of certain events and during certain periods, and thereafter, at any time prior to the close of business on the business day immediately preceding the maturity date.

The Company, at its option, may redeem for cash all or any portion of the Convertible Notes on or after May 1, 2022, if the last reported sale price of the Company’s Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days, including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

Sunrider, this reads like the option will be with the holder and only from May 2022, EZPW can somewhat cap the upside. Not sure how the "certain events"/"certain periods" will be specified in the end, but we have to assume that the convertible-holder will have at least a 4y-option.

I tried to value a 4-year-call here: http://www.fintools.com/resources/online-calculators/options-calcs/options-calculator/
Assuming a stock price of 13.25$, strike price of 15.90$ and 30% volatility, the call value is about 2.70$ per share which is 170$ per 1000$ of convertible notes.
The worst aspect, in my  view, is that the stock price dropped 10% on the convertible announcement, but the reference price they used for the convertible pricing is AFTER that drop. So, they send their stock price south  first and price the dilutive instrument on that cheaper price in step two.

Pricing the call based on the close price just a day earlier would have moved the conversion strike to 17.65 for a 20% premium. Alternatively, you a 15.90$ strike on a 14.70$ stock price give a call value of 3.55$ per share or 224$ per 1000$ of convertible.

I cannot see how this is not an (in my view outrageous) wealth transfer from  shareholders to convertible investors and woukd still be interested to learn how is buying these notes.
At this point, I still  own some EZPW shares but it really feels like racemize's conclusion is the way to go here.

I only read the first part - see below. I agree not ideal and would want to know who bought them. Maybe the sins of the old management team aren't over with this one.

USTIN, Texas--(BUSINESS WIRE)-- EZCORP, Inc. (NASDAQ: EZPW) (the “Company”), a leading provider of pawn loans in the United States and Latin America, announced today the pricing of its $150 million aggregate principal amount of convertible senior notes due 2025 (the “Convertible Notes”). The Convertible Notes were offered in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The Company granted an option to the initial purchaser for up to an additional $22.5 million aggregate principal amount of Convertible Notes. The Convertible Notes will pay interest semiannually at an annual rate of 2.375% and will be convertible into cash, shares of the Company’s Class A Non-Voting Common Stock (“Class A common stock”) or a combination thereof, at the Company’s election, based on the applicable conversion rate at such time. The Convertible Notes have an initial conversion rate of 62.8931 shares of the Class A common stock per $1,000 principal amount of the Convertible Notes (which is equal to an initial conversion price of approximately $15.90 per share of the Company’s Class A common stock), representing an initial conversion premium of approximately 20% above the closing price of $13.25 per share of the Company’s Class A common stock on May 9, 2018. The conversion rate is subject to adjustment in certain circumstances.
Title: Re: EZPW - EZCorp
Post by: KJP on June 11, 2018, 04:40:08 PM
EZ Corp just bought 23 more stores in Mexico for cash:  https://www.sec.gov/Archives/edgar/data/876523/000087652318000038/a2018-q3prestadineroacqex9.htm
Title: Re: EZPW - EZCorp
Post by: whistlerbumps on July 11, 2018, 03:52:42 PM
Seems like they are putting that capital to work.  Would be nice if they told us anything about the size of the deals but good that they are accretive and should be synergistic.
Title: Re: EZPW - EZCorp
Post by: DTEJD1997 on July 11, 2018, 07:41:40 PM
Hey all:

I strongly suspect that the recent weakness in the stock price is due to the analyst earnings downgrade.

I am bit suspicious of it...the analysts were way behind on the comeback of the company.

They are clearly putting the newly raised capital to work.

I am reasonably confident that the recent acquisitions are going to be accretive.  If that is the case, it is hard to see HOW the company has lower earnings than what was previously thought.

Of course, "the street" does not like the debt issues.

I think the stock is mildly under priced.  If they can execute well in the next few quarters, perhaps we'll see a spike in price?