Small credit lenders Money3 Corporation (ASX:MNY) and Cash Converters International (ASX:CCV) have released their full year results. Money3 announced a $13.9m profit up 78% to pcp, while Cash Converters revealed a staggering $21.7m loss due to one-off costs associated with class actions and impairment charges in its UK operations.
Money3 Corporation reported total revenue of $69.4m, an increase of nearly 60% compared to the previous corresponding period (pcp). This resulted in a 78% lift in net profit to $13.9m and a fully franked dividend of 2.75 cents. Earnings per share increased to 9.91 cents, giving MNY an attractive price to earnings ratio of 10.4, well below the marker average.
Money3 as well as its competitors were recently sold off as investors fear regulatory changes that could negatively impact small lenders. Fundamentally Wise-owl has a bearish view on the sector due to a combination of regulatory scrutiny, customer default risk, competition and vulnerability to interest rate rises. Bad publicity such as media reports about deceptive practices have helped accelerate the bearish sentiment.
Cash Converters announced a net loss of $21.7m compared to a FY14 profit of $21.1m just 12 months ago. Earnings per share came in negative at -4.69 cents per share. On the bright side revenue increased 13 per cent to $374.9m, roughly $43m more than last year.
Cash Converters terminated two agency agreements with Kentsleigh Pty Ltd and Cliffview Pty Ltd with an after tax impact of negative $16.8m
Other reason for the big loss are one-off costs associated with class actions. Cash Converters was ordered to pay $20m into a fund for distribution to members of the class plus additional legal costs of $3m. Also negative impacts from the UK legislative changes have affected Cash Converter’s UK operations and resulted in on-off costs to restructure the business as well as in an impairment charge.
No final dividend was declared due to “the application of the covenants under its banking facility.” The company states that underlying profit remains strong and cash resources are available, hence the company will try to replace the current bank facilities but it has yet to be confirmed.
CCV fell 12% today following the release of the results and is down 55.7% year-to-date. MNY rose around 3% is hovering just above the $1 mark. Wise-owl recommended to sell MNY on 30 March at $1.37 after technical support was broken.
Author: Simon Herrmann
Aug 28, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.