EZPW - EZCorp

[racemize]

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Your example is no longer valid.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?

[Homestead31]

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.

[ritrading]

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.

[JayGatsby]

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.

[JayGatsby]

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.

[racemize]

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.

[JayGatsby]

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.

[racemize]

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.

 

[DTEJD1997]

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...

[JayGatsby]

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.

[racemize]

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.

[JayGatsby]

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.

 

[racemize]

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:

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.

 

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.

 

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:

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.

 

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:

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.

 

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:

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.

[fareastwarriors]

As requested, please see attached sell-side reports I found.

MacquarieResearch_EZCORPNeutral-LesscertainaboutEZPWbusinessmodelabilitytoexecute_Jun_16_2015.pdf

SterneAgeeLeach_EstimatedTangibleBookValue_Oct_20_2015.pdf

[DTEJD1997]

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?

[ritrading]

I can't find anything on Edgar or their investor relations site. Has something been officially released?

[JayGatsby]

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)

[DanielGMask]

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!

[racemize]

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):

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.

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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.

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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:

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.

[JayGatsby]

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.

[DTEJD1997]

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.

 

 

[racemize]

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.

[racemize]

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.

[racemize]

GF being sold:

http://finance.yahoo.com/news/ezcorp-enters-agreement-sell-grupo-201500270.html

[stahleyp]

race are you up on this one? It's had quite a run recently.